Important Things You Should Know Before You Start To Trade Cryptocurrency
There are some important things you should know when it comes to trading cryptocurrency. The following are a few of the most essential things that you need to know before you start to trade cryptocurrency.
The cryptocurrency market is incredibly volatile. You could make a huge fortune one moment and then you can lose it the very next whether you are trading Bitcoin, the BTC Bitcoin trust, or another coin. You should consider mitigating your risks, hedging, and not go long on all of the funds that you have to invest.
Tip: If you only trade the top markets based on market cap (coins like Ethereum and Bitcoin), or GBTC, then the chance that you could lose everything overnight are quite slim (slim, but not impossible). There are other cryptocurrencies that are riskier (but on a good day can provide quick gains). Generally speaking, coins that have lower volumes and market caps to offer higher risk/reward.
Cryptocurrency exchanges are not associated with regular stock exchanges. We will be recommending below that you use the broker/exchange Coinbase. However, you also can use Coinbase Pro (the professional Coinbase version with lower fees) after you have signed up for your Coinbase account. These are not the same thing as Well Street and the exchanges (different entities, different specifics, same general mechanics).
A beginner may prefer trading cryptocurrency stocks on the traditional stock market. As an example, the trust GBTC owns Bitcoin and sell shares to its trust. When you trade GBTC you do not have to directly trade cryptocurrency. However, it still allows you to have an exposure to Bitcoin. Other than GBTC and ETCG, which is the Ethereum Classic version) there are very limited options for crypto stock. You also need to be aware that often GBTC trades at a premium (which means that it is cheaper to buy bitcoins than it is to purchase GBTC trust shares), and that is not ideal. Cryptocurrency trading is also a 24-hour market, whereas that is not true with the traditional stock market. Learn more about the details of GBTC Bitcoin Trust as well as its pros and cons before investing.
A beginner may prefer using Robinhood or the Square Cash App. You can buy and sell Bitcoin using the Square Cash App. However, it doesn't provide you with Bitcoin that can be sent to an outside well. You will be exposed to Bitcoin without having to completely about crypto exchanges and wallets. It is very simple, which makes it a good starting point. Basically, Robinhood at the moment functions like Square. However, they do offer a bigger selection of coins compared to Square and in the future are planning on allowing transfers. However, Robinhood is not available in all states.
For people wanting to have the real cryptocurrency experience, the place that I think is the simplest to store, buy and sell coins in the United States is Coinbase (and we have a tutorial below that can help you get started). However, on Coinbase, you can only store, buy, and sell Bitcoin Cash, Litecoin, Ethereum, Bitcoin, and a small (yet growing) assortment of other coins. However, if you seriously want to trade cryptocurrency, and would like to have access to all of the coins that crypto offers, then you also will want to sign up with another platform that allows you to buy and sell other cryptos like Kraken, Binance, Bittrex, and Coinbase Wallet (and you might want to find other wallet solutions like TREZOR for storing your coins in). See our lists of exchanges that we recommend for beginners for a more comprehensive list of options that are available.
Tip: Even if you are planning on getting fancy with exchanges and wallets, Coinbase is still a good place to start since it works on the basis of a simple on-ramp and off-ramp for fit (on Coinbase it is easy to trade dollars for cryptos, and on most exchanges that is not true).
So although it can be as simple as just grabbing a TREZOR, Binance, and Coinbase, or just lick a few buttons on the Cash App, in reality, there is a wide range of choices that are available to beginners in terms of how they would like to approach crypto. What is really cool is you can always try them all if you want to.
Cryptocurrency has a few different sides to it. 1. You can invest and trade it, 2. it can be used for transactions (anywhere a type of coin is accepted), 3. some software and a graphics processing unit can be used to mine coins, 4. you could develop for it, etc. All of these and more are interesting and valid ways that the crypto space can be interacted with. However, with all of that in mind, we are focusing here on "trading" cryptocurrency (which also means investing in it). Even if you would like to do these other things with cryptocurrency, you need to still be set up for trading (so for example, developers still need to get their operations funded and most miners sell some of their coins at least).
On cryptocurrency mining: One way that you can invest in cryptocurrency is through cryptocurrency mining. It is a valid way to start to invest if you love computer gaming and would like a new rig. You could invest small cryptocurrency amounts while earning some for the cost of your rig (or at least break even), however, that is a completely different subject. Most average investors want to trade US dollars for cryptocurrency on a regular exchange in order to avoid the investments and complexities of mining. Unless you have a good rig and great graphics card already, you will be needing to put some US dollars up front no matter what.
Important Things You Need To Know To Get Started Trading Cryptocurrency
For people wanting to trade actual cryptocurrency, keeping the above points in mind (so, for example, you won't be going with GTC or the Cash App), here is what we suggest:
A beginner should get started by selecting a company that has a good reputation and offers a wallet and exchange (that helps to keep it a simple process). Also, a beginner should start with trading prominent coins. In 2019, currently, we are referring to coins such as Ethereum (ETH) and Bitcoin (BTC). That could change in the future.
Based on the above, a good starting point for anybody wanting to trade currency would be to get started with Coinbase.com (which is the most popular U.S. cryptocurrency website, and a service offering a currency exchange and one platform for a Bitcoin Cash Wallet, Litecoin Wallet, Ehtereum wallet, a Bitcoin wallet, etc).
After mastering Coinbase you will be ready for Coinbase Pros as well as other exchanges such as Kraken, Binance, or Bittrex.
Tip: A good way to get started with investing in cryptocurrency is obvious, which is to purchase a major cryptocurrency such as Bitcoin. After doing that you probably will want to trade USD for cryptocurrency on an exchange such as Coinbase Pro. Then after that, you could try to trade ETH and BTC for other cryptocurrencies. It can be rewarding to trade "crypto pairs," but that is a lot more complex and frequently riskier compared to investing in just one cryptocurrency. So in other words, start out by trading dollar for some of the major coins such as ETH and BTC on an exchange such as Coinbase, and then once you are ready you can try trading ETC and BTC for other coins on exchanges like Binance.
Tip: Don't engage in margin trading unless you really you are an expert and know exactly what it is. Cryptocurrency is very volatile; you could end up losing all of your money instantly if you are not really careful.
Tip: Tread very carefully if you don't understand what tax implications are involved with trading cryptocurrency. When trading coins there are actually some nasty traps that you could end up falling into. For one thing, they aren't necessarily considered to be "like-kind assets." If this sounds confusing to you, you should seriously consider just trading USD for coins at Coinbase until you have a better grasp of this concept. Make sure you learn about taxes and cryptocurrency.
How To Get Started With Trading Cryptocurrency At Coinbase.com
It is a simple process to get started trading cryptocurrencies. However, there are a few things that are critical for your understanding. They are similar to what we discussed above, however, this time we will apply them with using Coinbase.
The first step is to sign up for an account with coinbase.com.
Sign up at Coinbase.com and get a digital currency wallet created where you can store your digital currency securely.
Connect your credit card, debit card, and/or bank account so you will be able to exchange digital currency in and out of your local currency (you also will probably want to add optional information and get your ID uploaded to increase your purchasing limit).
Purchase Litecoin, Bitcoin Cash, Ethereum, Bitcoin, etc (trade dollars for cryptocurrency).
Sell Litecoin, Bitcoin Cash, Ethereum, Bitcoin, etc. (trade cryptocurrency for dollars).
You might also want to consider signing up with another exchange to trade cryptocurrency for a cryptocurrency (and then transfer it back into Litecoin, Ethereum, Bitcoin Cash, Bitcoin, and then back to Coinbase and then into USD). Make sure you record your transactions to satisfy the tax authorities and become familiar with the tax implications of trading cryptocurrency (I really can't stress this enough).
Note: If you would like to use Coinbase Prod, do the first two steps above, but for step 2 use dollars of USDC to fund your account and then transfer your funds to Coinbase Pro for trading.
Tip: Some non-US currencies are accepted by Coinbase as payment. However, options might be limited. For more information, see Payment Methods at Coinbase.com.
Tip: Coinbase continuously expands its offerings, so check out the list of which cryptocurrencies Coinbase is planning on offering.
Important notes for sending, storing, buying, and selling cryptocurrency at Coinbase:
First and Foremost: Make sure you use a strong password and use two-factor authentication. Also, make sure that you enable all of the security features that Coinbase offers. Coinbase and Coinbase Pro are insured, however, not against your account being hacked, just against something occurring on their website.
To increase your buying and selling limits, input all of the possible payment forms. Not that they only support some banks. Yours may not be supported. Note that with a bank account fees are lower, and without one the fees are quite high. So you should use a bank account for directly purchasing cryptocurrency via Coinbase over any other of the payment methods when you can.
When signing in with your bank account, you will have to input the login for your bank account. That might feel shady, but that is the process (you can read more about it on Coinbase).
If you are using a bank account, you will need to wait 3 to 5 days for the pairing to be approved by your bank (so you won't be able to trade for around a week after signing up). There are limits to the amount you can buy or sell in one week. If you add other payment methods and a photo ID it will increase your limits. Others, over time, as you are trading your limits will increase fairly quickly.
Coinbase has instant purchase now when you purchase using your bank account.
Caveat: Instant purchase is not available with all Coinbase accounts. At this point many do, but not all.
There are fees when purchasing from Coinbase and some kinds of trading at Coinbase Pro (which as you buy and trade more gets lowers in some cases). There are better rates offered at other exchanges compared to Coinbase (Coinbase Pro, for example, offers better rates). However, it is rare for other exchanges to have a better fee schedule than what is offered by Coinbase Pro. So when specifically using Coinbase, you will pay a bit more than what the market price is (or sell for a little less than what the market price is) and have to pay a small fee when you trade on Coinbase (that is the trade-off for having ease of use).
Note: To be very clear, there are basically two sets of fees when buying with Coinbase. The first one charges you more per coin compared to Coinbase Pro and other exchanges; the second one is the actual fee (paid in crypto currently, not in USD, so if you purchase 1 Ether, you will get a bit less than 1 Ether but you pay the market price). This is the price that you pay for them doing all of the work and taking on the risk of the price changing rapidly when you are buying. That isn't a reason not to use Coinbase and only use Coinbase Pro each time. However, it is something to keep in mind if you begin to make lots of buys.
These days USDC (which is a stable coin) can be used on Coinbase instead of dollars in some cases. Although that is mainly something to keep in mind when trading on Coinbase Pros, that is still important to note at Coinbase too since you can purchase USDC directly on Coinbase without a fee (and also swap between USDC and dollar for free any time). You must use USDC on some trading pairs, while on others you cannot. Try using your bank account to buy USDC and then swap between USD and USDC as needed. One benefit to purchasing USD and USDC on Coinbase is there are no fees (as opposed to directly purchasing cryptos via Coinbase.com, which may result in premiums and fees).
In order to trade coins, you will have to go into your setting and be sure that your wallets are set up (every coin has a wallet; you can find wallets under "accounts").
On Coinbase, the benefit of having a USD wall is you can put money into it and then after the deposit has cleared, use it to immediately buy coins moving forward. The transaction will take around a week if you attempt to purchase it directly using your bank account. Therefore, it is a good idea to fund your USD wall or purchase USDC and use it moving forward for purchasing cryptocurrency. You will still need to wait for your deposit to clear, however, after it has clear your bank, you will be able to use the funds. On Coinbase.com you can purchase coins via your USD wallet (you just toggle over to your USD wallet rather than on bank account whenever you are making your purchase). However, you still will be charged a broker fee, and you can purchase coins at Coinbase Pro using USDC or USD for no or low fees (low fees on market orders, no fees on limit orders).
You don't have to purchase a whole coin. Fractures of coins can be purchased. These days, Bitcoins are expensive, so to start out you could consider buying fractions of this coin. Historically it has been a mistake to purchase only other cryptos just because BTC costs more. You have to consider which one will retain and increase in value, and buy all three in equal dollar amounts (and ignore how many of each coin this amounts to) is a way of avoiding making the wrong decision based on what a coin costs.
When you purchase a coin, take a deep breath and thoroughly review the information. One extra decimal place might mean big money when you consider that one Bitcoin may trade for more than $4,000.
It is easy to send cryptocurrency to other users using Coinbase. It can be sent to another Coinbase user's email address or it can be sent to an outside address. You just need to carefully review the information You cannot reverse a transaction if you mistakenly sent it to the wrong crypto address. So be careful!
Download the app. The app allows you to use your phone to trade cryptocurrency. The market is very volatile, but transactions are slow. Whenever it is time to sell or buy, it is important to do it as soon as possible.
Set alerts. Alerts help you decide when you should buy or sell.
Coinbase also has a feature that allows you to make incremental purchases over time. When you average a position weekly that is a solid conservative move that is automated for you by Coinbase.
Cryptocurrency is very volatile! So there is always a chance that the market could crash or you could be faced with another catastrophe. Cryptocurrency is not a regulated currency or centrally controlled. If someone chats you or you lose coins, there isn't anything that can be done (that is why you need to set-up 2-factor authentification).
It is easy to get started with trading cryptocurrency, but there important aspects that you need to understand before you start to trade with a wallet-exchange such as Coinbase.
Keep in mind, there are numerous other options that are available for trading currency and setting up wallets. However, most can be paired with a Coinbase account which makes it a logical starting place).
Note: After you learn how to use Coinbase, try out Coinbase Pro. In simplistic terms, it is like an improved Coinbase version with lower fees. Both platforms are operated by Coinbase and you can use the same login. For many U.S.-based Bitcoin traders, Coinbase Pro is their preferred exchange. It caters to both novices and pros. Once you master it, you can consider exchanges such as Binance and Bittrex.