Since the rise of bitcoin several years ago, cryptocurrency has been all the rage with investors across the world.
If you are curious about cryptocurrency but don’t know how to get involved, that will all change after reading this article. We will let you know the basics of cryptocurrency so that you can know before you invest in it.
What is Cryptocurrency and How Does it Work?
Cryptocurrencies are actually digital assets that are powered on the blockchain. This blockchain technology stores a ledger for every transaction of the cryptocurrency on every node powering the blockchain.
There are many different types of cryptocurrencies. Out of all of them though, they all have one thing in common: they operate on blockchain technology, which makes them decentralized. This means that the financial operations through cryptocurrencies have several efficiencies over the traditional financial system. First, they cut out almost all the overhead costs associated with banks. Second, they are less expensive transactions that can be sent and received internationally. Third, there is inflation or finite supply that’s written into code. Last, financial derivatives like trading strategies and loans can be coded directly onto certain cryptocurrency blockchains. This replaces the need for financial intermediaries.
Which Cryptocurrency Should I Trade and with which Broker?
There is not an ultimate cryptocurrency that works the best overall. They all have their pros and cons depending on the time. Despite this, it’s still important to invest in cryptocurrencies that have a strong team supporting the project.
When looking at brokerages, there are a ton of options for you to choose from. For new investors, Coinbase is a great option. The benefit to this brokerage is that it has a free cryptocurrency conversion feature where you can trade your crypto for any other token supported by Coinbase.
Other crypto brokerages that are great options for beginner traders are eToro, Binance, Gemini andRobinhood.
How to Trade?
Step 1: Create a cryptocurrency brokerage account.
You will need to make an account with a crypto brokerage to begin. Coinbase, Gemini and eToro, as we have stated, are among the best crypto brokerages out there right now. All of them offer a fairly easy interface so that beginners can ease into trading naturally.
To create an account, you’ll need to provide your crypto brokerage with personal identification information just like you would when opening an account with a bank. Some information that you will need to provide when making your brokerage account includes your Social Security number, address, and date of birth.
Step 2: Fund your account.
Once you’ve created your new crypto brokerage, you’ll need to connect your personal bank account. This is so that you can later transfer money into it. Most crypto brokerages will offer bank funding through debit cards and wire transfers. Wire transfer is usually the cheapest option to fund your account. Plus, it’s free on Coinbase and Gemini.
Step 3: Pick a crypto to invest in.
Here’s the easy part. Once your brokerage account is properly funded, you must choose a cryptocurrency to invest in. Most active cryptocurrency traders typically allocate a chunk of their capital to Bitcoin and/or Ethereum. These are very well-known cryptocurrencies and they move more predictably than others, so trading with strategies can be easier.
Many crypto traders allocate a portion of their capital to smaller cryptocurrencies too.
Although small mid-market cryptocurrencies can be riskier than larger market cryptocurrencies, they offer a higher probability for growth. Many small cryptocurrencies have risen over 1,000% within months. This makes them attractive investments for risk-tolerant investors.
Step 4: Choose a strategy.
A strategy can come in the form of market analysis or technical indicators.
Market analysis involves the observation of the market and how it bounces off of certain points and moves in different directions. It also involves checking the news in order to predict the market based on what is going on with events associated with the crypto. Some crypto experts use market analysis often.
Indicators are also a great option for a strategy. There are plenty of trading indicators to choose from, and most traders consider multiple factors when buying and selling cryptocurrency. Technical indicators can be a little tricky to understand at first, so it may be best to join a cryptocurrency trading course. You can find these online or go to Youtube to find free tutorials on trading crypto.
Step 5: Store your cryptocurrency.
When you’re actively trading your cryptocurrency, you’ll need to store your funds on the exchange to have access to them. If you decide to buy your cryptocurrency to hold for the mid to long term instead, then you should get a cryptocurrency wallet.
Cryptocurrency wallets come both as software wallets or hardware wallets.
Both are secure wallets, however, hardware wallets offer the best security. This is because they store your crypto on a physical device, offline. If you are looking for a great hardware wallet brand, Ledger is an option that many investors trust the storage of their crypto assets on. If you’re looking for a software wallet, there are several options on iOS, Google Chrome, and Android that are free and easy to use too.
Before you start trading cryptocurrencies, you must understand that they are digital assets that are powered on the blockchain stored as ledgers. You should also understand that there are a range of cryptos along with brokerages that you can use when you follow the steps above to start trading. It is also important to have a good strategy and wallet as well.
Remember, these are just the basics of cryptocurrency. There is so so much more to trading crypto that you should research to further understand. Plenty of people online are experts that can give you the right insight that you need to properly educate yourself.
If you would like to read more articles on finance, you should check out this article on Why it’s So Hard for Us to File Taxes next!