Cryptocurrency trading can be a highly lucrative activity, but it’s crucial to do plenty of research before diving in. Although you should already understand the basics of cryptocurrency trading by this point, you’ll need to do even more prep work before you begin executing trades.
Here are some things you should consider:
Educate Yourself
The first step to learning how to trade cryptocurrency is educating yourself on what it is and how it works. What are the differences between fiat currency (dollars, euros, yen) and cryptocurrency? What are the risks associated with trading? What do you need to know about taxes?
There are many different types of cryptocurrencies. The best way to learn about these other types of cryptocurrencies and tokens is by researching them. You’ll also want to become familiar with the different exchanges that exist. Learn which exchanges work in your country/area and which will meet your needs as far as fees and security go.
You’ll also want to be aware of scams like fake ICOs (Initial Coin Offerings). These can be particularly tricky because they market themselves as legitimate opportunities for making money but end up being pyramid schemes or otherwise fraudulent operations. It’s vital to take the proper time researching before investing any amount of money so that you don’t end up losing everything.
Open an Account with a Cryptocurrency Exchange
After you have a portfolio established, follow the steps below to open an account:
- Create a user account by entering your email address and creating a password.
- Register your identity and verify it. That includes providing information about yourself like your name, address, phone number, and photo ID. The verification process often takes 1–3 weeks because the exchange will manually review all documents submitted to prevent fraudulent activity from taking place on the platform.
- Link your bank account or credit card (or both). If you choose to link a bank account, you’ll be required to input routing information for security purposes. You may also be asked to provide proof of ownership for the bank account through a photo ID and letters sent to your address.
- Choose which payment method will be used when buying cryptocurrency with fiat currency (your local currency). Different exchanges allow different payment methods such as wire transfer, credit card, or debit card. You can research this information on websites like CoinMarketCap or Coindesk that list exchanges or contact customer service at each exchange directly if it’s not available online.
- Add funds to your account through the chosen payment method to use those funds to buy and trade cryptocurrency with other users of the exchange platform. Adding funds can happen in several ways, depending on the exchanges.
Fund Your Account With USD or Another Fiat Currency
There are several ways to fund your exchange account, and each method has its pros and cons. We recommend going with the bank transfer option as it is both quick and inexpensive (though you do need to wait a few days for the transaction to process).
- Wire Transfer: Using this method, your bank will wire funds directly from your account into your wallet. That is one of the most straightforward methods for adding money, but unfortunately, it can take up to 5 business days for the funds you deposit to appear in your account if you use this method.
- Bank Transfer: If you don’t mind waiting a few days for your funds to show up in your wallet, using an ACH bank transfer is probably one of the cheapest ways (in terms of fees) that you can add money to the exchange. There’s no minimum deposit amount. So, if you’re just starting, that is an ideal way of getting some funds into your account without having to spend much on fees.
- Debit Card Transaction: Using a debit card linked directly with a US bank account allows you to transfer money immediately into your exchange wallet—but be aware that these transactions usually carry higher fees than other methods such as ACH or wire transfers.
Buy Cryptocurrencies
You can obtain cryptocurrency in a few different ways. However, it is usually easiest to buy cryptocurrencies with fiat currency. If you don’t have fiat currency on hand, you can also purchase a cryptocurrency using another cryptocurrency or directly from other people.
While buying, always keep an eye on cryptocurrency prices. The cryptocurrency value for a coin or token will never be the same for a prolonged period. That is because cryptocurrency markets are volatile. So, you must be aware of the latest developments in the crypto markets.
Place a Trade on the Exchange
Cryptocurrency trading, as you may have guessed, is the act that allows you to trade currencies for virtual currencies, also known as cryptocurrencies. It’s carried out on digital exchanges—most commonly centralized exchanges– which helps reduce risks and mitigate the risk of hacking.
In a nutshell, there are two possible outcomes when trading: either you win or lose. If you win the trade, you’ll receive more money than what you paid, and your position will increase by the same amount. If you lose, you’ll pay more money than what was taken out of your reward, and your position will decrease by this amount.
Understand the Tax Implications of Cryptocurrency Trading
When you choose to use a cryptocurrency exchange service instead of setting up your wallet and buying coins on the open market, you may have to pay taxes on what are considered taxable events. A taxable event is something that can trigger a tax liability, such as the selling of an asset like Bitcoin.
What’s more, depending on where you live and how much you earn from trading cryptocurrencies, different rules may apply. It is important for any trader to understand how taxes work in their country and to plan accordingly.
You may also need to pay income tax if you’re using money from your crypto profits to support yourself, though this is dependent on where you live. If this is the case, the income tax would be based on the money received and spent during a given year.
Ensuring all these things will allow you to master the art of cryptocurrency trading.
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