Cryptocurrency and crypto trading are not just buzzwords. We can go into a lengthy discussion about bubbles, regulations, temporary hype — but the fact remains: people are making money trading crypto while you are reading this.
Instead of wasting more time on philosophy about financial markets and what-if situations, let’s see how one can join the moneymakers and start crypto trading on their own.
1. Choose wallet for crypto.
For starters, you need to choose and set up a cryptocurrency wallet and pick an exchange to trade on. A cryptocurrency wallet is a place where you store encrypted passwords that represent coins, it is the equivalent to storing money in a bank account. We will write a detailed review of wallets for cryptocurrencies in our next articles.
2. Choose the place for exchange.
A cryptocurrency exchange is like a stock or currency exchange — a place where you can trade cryptocurrency for other cryptocurrencies and fiat currencies like the US dollar.
One of the things to know here is that cryptocurrency exchange is not part of the regular stock exchange. They are not the same as Wall Street and its exchanges, although they share same general mechanics. The number of best platforms keeps growing as the market is still forming, here is a top 5 list of cryptocurrency exchanges ranked by trading volume.
When you are choosing the crypto exchange, look at and compare cryptocurrency platform fees, among other things. Using some crypto exchanges you will pay a percentage of each deal, using other ones you will pay for income and outcome transactions. You need to pick what fits you more. For example, Bitfinex charges Maker 0.1% and Taker 0.2% in fees based on the volume. Kraken charges Maker 0.16% and Taker 0.26%. European BitBay charges both types at 0.43%. You can see and compare fees schedules here.
3. Diversify your portfolio.
Similar to investing, diversification is king. To lower possible trading risks, it’s better to distribute your money into different cryptocurrencies. While some grow, some will fall and by not putting all your money on single bet you can balance the losses. That said, trading requires research and tracking changes and there are a lot of cryptocurrencies — which means a lot of research. Start with a few and expand slowly.
There are a few different things you want to keep in mind when selecting a cryptocurrency and the market valuation is among important factors. Expert traders point out three main valuation types that define cryptocurrencies:
Large cap — top 5 coins
Mid cap — coins bigger than $200 Million
Small cap — coins smaller than $200 Million
You can choose large coins by market cap at coinmarketcap.com
You can form your trading portfolio based on the proportions that you feel comfortable with. For example, it could be 34% in large cap, 33% in midcap, 33% in small cap. You can grow your portfolio monthly.
A good tip is to not hold all currencies on the exchange because if it is hacked, you will lose everything. It is best to hold cryptocurrencies in your personal wallet where you own and control the secret key.
4. Take time for research.
As mentioned above, get ready for tracking and research. If you want to be successful, track the latest cryptocurrency news, ranking and key indicators daily. Join the discussion threads on Reddit and Telegram. And don’t be afraid to ask fellow traders questions. If you look at those discussion threads, you will see that it is a very engaged and helpful community. This will help you to make smarter decisions. But don’t do the FOMO trade (Fear Of Missing Out). Don’t be caught in the fear of missing out the next big opportunity in the crypto space.
5. Buy by fractions and keep balance.
And remember, you don’t have to buy a whole coin — you can buy fractions of coins. The top coins are expensive, so consider buying fractions of a coin to start if you don’t have a big bankroll. It has historically been a mistake to buy only ETH and LTC because BTC costs more. You should consider which one is most likely to increase in and retain value.
Given that you can always buy additional fractions of cryptocurrencies, you can periodically buy additional fractions and grow your portfolio while keeping the balance. This is a good strategy to optimize the average price.
6. Check local regulation.
Always check your local regulations. If you don’t understand the tax implications of trading cryptocurrency tread very carefully. There are some nasty traps you could fall into when trading coins.
7. Don’t invest your last money.
Remember, cryptocurrency is volatile! There is always the chance that the market will crash. Cryptocurrency isn’t a centrally controlled and regulated fiat currency. Even though blockchain is connected with a feeling of security for most people, a 2-factor authentication is used, if you lose a coin or someone cheats you, there is still nothing you can do about it.
And the last but probably the most important tip in this post: Don’t trade with money that you can’t afford to lose!
Article Source: https://medium.com