Due to its high volatility, many investors are drawn to cryptocurrency trading as it can offer much higher returns than traditional investments, provided that the market timing is right. However, this increased potential for returns comes with a significantly higher risk compared to less volatile assets.
There are generally two goals for cryptocurrency traders: accumulating Bitcoin (BTC) and/or Ethereum (ETH) or generating a profit in USD in a shorter timeframe. While it may be relatively easy for a portfolio to increase in USD value during a crypto bull market, building up a Bitcoin stake can be more challenging. To track a portfolio’s value in terms of Bitcoin, one can use a free crypto portfolio tracker from Benzinga’s guide.
Active trading of cryptocurrency carries the risk of losing one’s holdings to the market due to the high volatility of cryptocurrency prices. It is not uncommon for traders to quickly lose money when trading cryptocurrencies, which is why many crypto enthusiasts opt to “HODL” their Bitcoin and other cryptocurrencies instead.
Here are the 6 steps to trading cryptocurrency:
Step 1: Create a cryptocurrency brokerage account.
To begin trading cryptocurrency, you must first create an account with a crypto brokerage. Among the best crypto brokerages available are OKX, eToro, Uphold, and WeBull, all of which offer a user-friendly interface and a variety of altcoins to trade.
To set up your account, you will need to provide personal identification information, much like when opening an account with a stock brokerage. Common details required during the account setup process include your Social Security number, address, date of birth, and email address.
Step 2: Fund your account.
Once you’ve created an account with a crypto brokerage, the next step is to connect your bank account. Most crypto brokerages offer bank funding options through debit cards and wire transfers, but ACH deposits (linked bank account transfers) are typically the most cost-effective method and are often free on most platforms.
Step 3: Choose a cryptocurrency to invest in.
Many active cryptocurrency traders allocate the majority of their capital to Bitcoin and Ethereum, as these cryptos tend to move more predictably than smaller altcoins, making trading with technical indicators easier. However, some traders may choose to allocate a portion of their capital to smaller altcoins, which can offer higher upside potential despite being riskier than larger-market cap cryptos.
Step 4: Select a trading strategy.
With numerous trading indicators to choose from, most traders consider multiple factors when buying and selling cryptocurrency. If you’re new to investing, it may be worthwhile to invest in a cryptocurrency trading course like Asia Forex Mentor’s One Core Program, which has been featured by several financial information sites and is a popular choice among traders.
Experienced traders may use stock trading strategies for cryptocurrencies, with Elliott Wave Theory being a personal favorite for many traders. This strategy focuses on the psychology behind market sentiment and works well for speculative assets like cryptocurrencies.
Step 5: Consider automated crypto trading.
Automated crypto trading with platforms like Coinrule can be a helpful tool when seeking out a crypto trading strategy. Trading bots enact a predetermined strategy based on your investment goals, allowing for a conservative, neutral, or aggressive approach. This can provide quick returns, allow you to hold your coins, or diversify your portfolio. Some traders may also opt to actively trade on some platforms while using automated trading on others.
Step 6: Securely store your cryptocurrency.
If you plan to actively trade your cryptocurrency, you’ll need to keep your funds on the exchange where you can access them quickly. However, if you’re purchasing cryptocurrency for the medium to long-term, it’s recommended that you use a cryptocurrency wallet.
There are two types of wallets: software wallets and hardware wallets. Both are secure, but hardware wallets offer the best protection as they store your crypto offline on a physical device. Ledger is a reputable brand that many investors trust to store their crypto assets. It supports all the top cryptos and offers reasonably priced wallets to keep your coins secure.
For a software wallet, there are numerous free options available on iOS, Google Chrome, and Android. One of the best software wallets for cryptocurrency traders is ZenGo. The mobile wallet offers secure 3-factor authentication to safeguard your digital assets, providing similar security to other wallets on the market. Additionally, ZenGo allows you to buy, sell, and earn interest on digital assets directly from your wallet.
ZenGo is particularly suitable for novice investors who do not want the responsibility of keeping their private key safe and secure, as it eliminates the vulnerability of having a private key.
Comparison of Cryptocurrency Brokerages and Exchanges
There are numerous options to choose from when it comes to cryptocurrency brokerages and exchanges. For beginner investors, WeBull is a great choice for several reasons. It provides both stock and crypto trading on the same platform, allowing you to start with crypto trading before diving deeper. Additionally, it offers excellent paper trading functionality, enabling you to test out crypto trading without any financial risk.
For intermediate traders, eToro, WeBull, and Uphold are some of the most reliable cryptocurrency brokerages to consider. Robinhood also supports certain cryptocurrencies, but it only allows trading for five altcoins.