Key Things to Know When Trading Cryptocurrencies
Successfully trading cryptocurrency is not easy. It requires time, hard work, a discerning eye, and sometimes and iron stomach.
Over the past couple years, more and more people have bought and sold cryptocurrency, some to their great benefit, others to their demise. Often what separates the successful from the not, isn’t so much luck — though one of those groups may feel that way — but usually the right recipe of behavior that allows some to thrive where others struggle.
If you ask a room of 100 people who have bought and sold bitcoin, ethereum, or other, lesser known cryptocurrencies, such as DASH or Neo, how they went about making their trades, you will undoubtedly receive 100 unique responses. Everyone has their own process, and each will probably swear their’s is the right one.
But how do you really know if you’re doing it correctly? To be honest, you can’t, really, because there is no single correct way. However, while there is no perfect end-to-end process for how to do this, there are some,
The basic formula for how to buy and sell cryptocurrencies is as follows…
- Decide What You Want
This, believe it or not, is the fun part. You get to look at the 2000+ cryptocurrencies being traded 24/7 every day and decide which ones you like best and want to make your own.
Seem overwhelming? It can be, but as you get used to learning about how each token (another word for cryptocurrency) works, you’ll start to notice patterns — similarities and differences between them that reveal which have the potential for greatness, and which are destined to fall by the wayside.
While it certainly can be fun to dive into your research, be prepared to spend some time doing it. It can take 10, 20, even 50 or more hours of reading and learning to truly understand how a cryptocurrency works and whether or not you want to buy it. But if you want to buy into this market, you need to start here!
2. Create Your Account(s) and Buy! Buy! Buy!
Ok, you’ve spent some time learning about bitcoin, ethereum, and even some of the lesser known cryptocurrencies, like Stratis and ZCash, and are ready to start buying a few.
Time to learn about exchanges and other (better?) ways to buy cryptocurrencies. Let’s start with exchanges.
Exchanges
Exchanges are marketplaces where people (and companies) can buy and sell cryptocurrencies, essentially using the same tools wall street traders use with stocks. Most cryptocurrency exchanges primarily operate using bitcoin as the medium of exchange, so rather than allowing you to directly purchase most cryptocurrencies with traditional currency (also known as “fiat currency”) directly, you instead have to purchase them with bitcoin.
This, of course, means you need to get yourself some bitcoin. There are a number of services that help with this, some better than others. Gemini, Kraken, and Coinbase are a few that will help you do this at a modest cost. Each works a little differently, but in the end their platform will help turn your dollars into bitcoin.
Once you have your bitcoin “in hand” the next step is to then transfer it to one of the exchanges that allow people to buy and sell the other 2000+ cryptocurrencies in existence. This means going through the same account creation step you just did with perhaps Gemini, except this time you’ll do it with one of the “altcoin” exchanges, such as Bittrex, Bithumb, or Binance (altcoins are a term for any cryptocurrency that is not bitcoin).
Ok, almost there. The last step before you are ready to place your first order is to transfer your bitcoin to this new exchange by sending it to your exchange account’s wallet. The address for that wallet is likely over 15 characters long, so you’ll want to copy and paste , and then triple check it to make sure you have it right, otherwise you’ll never see your bitcoin again.
Great, you’ve made it. Time to buy the tokens you want!
This is what the exchanges look like. In one column you have the various prices at which people are willing to buy a cryptocurrency, and in the other is a column of prices at which other people are willing to sell it. If a price entered in both columns, then a trade goes through and the buyer exchanges their bitcoin with the seller for their altcoin. Sometimes it takes a minute, sometimes it takes a week, or even a month or longer! It all depends on the price you are willing to pay (or sell). The chart shows the price changes over time, adding context to the transactions being executed.
This process takes some getting used to, but after a while you’ll be able to make trades pretty comfortably. Using exchanges is not a bad option if you want to buy a little here or there. They take some getting used to, but once you understand the process, you should be set, as the exchanges do not really change.
But because the exchanges are so simple, offering little in terms of features beyond what is described above, they can leave something to be desired. For example, if you are interested in building a large portfolio of cryptocurrencies, perhaps 10, or even 50, they may not be the best option for you. The exchanges only allow you to buy one cryptocurrency at a time, and you have to set you orders manually each time — no such thing as an automatically repeating order on the exchanges. They also offer little to no information on the cryptocurrencies you are buying, so you really have to do your research and stay up to date on the constantly changing industry.
For many people, the complicated nature of this process prevents them from getting started in cryptocurrency. Luckily for them there are other good options.
Alternatives to Exchanges
There has been an explosion over the past two years in the number of companies working to make buying and investing in cryptocurrencies far easier and more convenient than ever before. Some aim to serve the wealthiest among us, while others have products meant to empower the general public to benefit from this market.
Cryptocurrency hedge funds and index funds are two of the fastest growing entities in the industry, both meant to serve the elite. Hedge funds are actively managed investment vehicles, where a company manages a portfolio of cryptocurrencies, executing trades based on a core strategy and in response to market trends and news. They tend to charge arguably excessive fees of 20% or more of their investors’ profits, so they must deliver fantastic results in order to justify their position. Index funds, on the other hand, or passively managed funds; investors buy into a portfolio of cryptocurrencies that is assembled and remains essentially static (the recipe of the index fund does not really change regardless of market conditions or industry changes).
Both hedge funds and index funds have minimum investment requirements, ranging often from tens of thousands of dollars all the way up to a million or more just to begin. These are designed to serve the elite, and so they are only available to limited individuals.
If you are not part of the 0.1%, not to fear, there are other great options for you. For people looking to invest in this industry, who do not want to navigate the exchanges, there are great options for you too.
This is where Elevatyr comes in. Elevatyr is a cryptocurrency trading platform that allows people to securely and easily buy and sell cryptocurrencies from their phone. Rather than buying just one cryptocurrency at a time, users subscribe to a portfolio of cryptocurrencies (kind of like the index funds above), which they can customize to their liking. When someone makes a purchase in the app, Elevatyr converts their funds into the different tokens in their portfolio based on the percentages they have set, and then puts everything into secure storage for their peace of mind, and gives users the ability to track their account’s progress as they go along.
Other options that exist to allow people to trade cryptocurrencies off the exchanges would be Shapeshift and Changelly. These are both examples of platforms built on top of exchanges, that allow people to more easily convert one cryptocurrency into another. Of course, while the excel in convenience, they lack in information and security — you are still required to know what you want to buy and how to keep it safe.
Speaking of how to keep it safe…
3. Keep Everything Safe
Much in the same way you keep dollars and credit cards secure in a wallet, cryptocurrencies are kept safe in wallets of their own — digital wallets. These wallets come in many forms, each with their own set of advantages and disadvantages.
Paper Wallets. Paper wallets are exactly what they sound like. They are piecse of paper with QR codes printed upon them that hold the necessary pieces of information (public key and private key) to access the assets within them. Essentially immune to hacking, these are an inexpensive way to store your cryptocurrency in a singular location. As long as they are kept in a safe place, paper wallets arguably the safest storage option.
Online Wallets. Online wallets store the public and private key information on the cloud. While convenient, they are far more susceptible to hacks and other coordinated attacks, and are often considered to not be the most secure method to store cryptocurrency tokens.
Mobile Wallets. Mobile wallets have arguably progressed further than any other form of storage over the past few years. These wallets are stored and accessed through a smart phone, and are designed to secure tokens for convenient use. Some mobile wallets are designed to store a specific cryptocurrency, while others are meant to be more flexible and work with multiple types of tokens. Although more accessible for users, the quality of security ranges widely from wallet to wallet, so as always, do your research before starting.
Desktop. Like mobile wallets, desktop wallets are often token-specific, but not always. Also like mobile wallets, desktop wallets often have questionable security simply because they are potentially accessible by malicious outsiders who can perform hacks over the internet. While some desktop wallets work well, and offer some level of security and convenience, often there is a better option.
Hardware Wallets. Hardware wallets can be thought of as the high-tech cousin of paper wallets. Like paper wallets, hardware wallets are designed to not be accessible to outsiders over the internet, offering a great level of security. Tricky to set up, and often limited by the tokens they support, hardware wallets offer great security at the expense of convenience.
4. Stay Up To Date
This part is key. Unlike the stock market, cryptocurrency markets never sleep, operating 24/7. This is problematic even for the most dedicated of traders, as unlike the markets, people in fact do sleep, which means it is very easy to miss important developments that can have a huge affect on the market in an instance.
If you are savvy enough to create some bots to empower the intelligence of your trading, then you are a step ahead of most people. But for the rest of us, it is in your best interest to do a couple things.
First, do your research; not just once, all the time. The work does not stop after you make your trade, in many ways it is just beginning. The blockchain industry is constantly changing, as these companies further develop their products, achieve adoption, and react to the changing regulatory environment. These are just some of the factors that make cryptocurrency markets incredibly dynamic and give experienced traders consistent opportunities to profit.
The second important step to take is to protect yourself. Making money from great trades is fantastic, but is only half the equation. The other half is protecting yourself from downturns in the market. There are a many ways to do this, but one of the simpler ones is to set stop-losses on your trades. A stop-loss is a type of order some exchanges offer that allows you to make automatic sales in the event of a dip in the market. Strategically setting stop-losses will allow you to sleep better at night knowing your portfolio’s value is protected even when you are not strictly paying attention.
Successfully trading cryptocurrencies takes time, research, patience and experience. If you are interested in taking your investing into your own hands and are looking for any exciting way to grow your wealth, then cryptocurrencies may be a great option for you. But if risk is not your friend, then perhaps it is best to wait, as only time will tell what the future holds for this emerging industry.
Disclosure: This article does not represent cryptocurrency investment advice, and is for informational purposes only. Trading decisions should be made on an individual basis, and be informed by independent research. Elevatyr makes no recommendation as to trading behavior that should or should not be taken. The author of this article owns a small stake of a variety of cryptocurrencies.
