The year 2017 has definitely established the cryptocurrency as one of the fastest growing asset classes of the world. The overall market cap of the all the crypto currencies combined grew at a stellar rate of 800% in 2017, outperforming other asset classes like equities, bonds, gold, etc. by a long margin. This growth also propelled new investors to register on multiple cryptocurrency exchanges and start trading. Through this post, I will try and give you a beginner’s guide on how to trade on a cryptocurrency exchange. It will help you learn everything you need to know before you start trading Bitcoin, Ripple, Ethereum or any other cryptocurrency.
There are multiple exchanges available in India for you to kick-start your cryptocurrency trading. All of them have differentiating features, which you should check before registering. Some of the main differences you’ll find include:
• Cryptocurrencies available: Bitcoin (BTC) will be largely available on all the platforms for sure. However, there are more than 200 other crypto currencies available in the world, and you need to see how many of these are available on a particular exchange. Not all the currencies are available on all the exchanges.
• Trading features: Every exchange will have a video or a separate section on features and basic ‘to dos’ for new investors. This is to simplify your overall experience and also to teach you key sections of the exchange. Hedging, stop loss features and other options can give you more control over your trading. Experienced traders might be able to benefit from these, while first-timers might prefer to keep it simple.
• Leverage available: Leverage lets you trade beyond your initial deposit and multiply your gains, suiting those who prefer higher risks and higher rewards. You can often find leverage up to 20:1 with cryptocurrency, depending on your chosen platform and currency pair.
• Minimum investment: This is a tricky one. While you should decide your investment amount before trading, exchanges also have their limits of the minimum and maximum amount you can invest.
How cryptocurrency trading works
Unlike in the equities market where you need to have a broker or in the mutual funds market where you need to have a fund manager, the cryptocurrency exchange is all about you. You will yourself register your account (along with the required KYC) on an exchange, you will yourself deposit the money on to your wallet and you will yourself buy / sell crypto currencies. Yes you can get tips from industry leaders online, but it is always better to do your own research and then start trading.
Basic steps for trading:
Step 1: Sign up for and exchange to create a digital currency wallet where you can securely store digital currency Step 2: Update your KYC documents to connect your bank account, debit card, or credit card so that you can exchange digital currency into and out of your local currency Step 3: Buy crypto currencies from the balance available in your wallet Step 4: Sell crypto currencies at a profit which automatically reflects in your wallet
Step 5: Transfer the money from your wallet back to your bank account
The advantages of trading crypto currencies
• Open 24/7: Unlike stocks and commodities, the cryptocurrency exchanges are open for trade 24/7. Since all of them are a peer-to-peer exchange platform, you can place and execute a trade beyond the ‘normal business hours’ in which other asset markets work.
• Fast trades: You can place multiple buy/sell orders on an exchange. The moment the market price of the cryptocurrency hits your order; the trade gets executed. It’s that simple.
• Cheap fees: For each trade, the exchange platform you’re using will take a small percentage as commission for the service they’re providing. This is inevitable. The advantage here is that the fees for transferring crypto currencies (typically via wallet payments) are cheaper than credit card and bank transfer fees; market-trading fees are cheaper than forex-trading fees.
In conclusion
Trading crypto currencies works almost exactly the same as trading fiat currencies, and it will benefit you greatly to learn the theory behind trading currencies. Take baby steps and begin by executing 1-2 orders. Get the hang of the market and the exchange that you are trading on. While profits are never guaranteed when trading, you can take steps to protect yourself from heavy losses and to improve your understanding of how markets move. There’s more to know than can be crammed into this guide, but the only real way to learn is by doing. This generally means picking a platform, setting aside some money that you don’t mind losing, and getting to learning.