Last Updated: July 7, 2020.
Trading anything comes down to a simple science of buying and selling goods. The principles behind crypto trading are the same, but the reality is much more complicated than that. Even so, the potential profits to be made on the crypto market make the effort more than worth it. Before you begin trading, however, you need to understand the basics of successful crypto trading.
What is Cryptocurrency?
Let’s start with the basics of the basics and address what cryptocurrency is. A cryptocurrency is just like any other currency that people use to buy goods and services. The difference between crypto and regular currency is that cryptocurrencies are digital, decentralized, and encrypted.
Digital cryptocurrencies only exist in electronic form and are not governed by a single body, unlike the regular currency, which is controlled by the banks. There are no middlemen involved in trading cryptocurrency, so there is rarely a transaction fee required. Any fees are minimal.
How to Trade Cryptocurrency
There are two things you need to trade cryptocurrency – a cryptocurrency wallet and a cryptocurrency exchange.
A wallet stores the password that protects the coins. Think of it as being like a bank account where you send and receive coins. An exchange is where you can buy and sell coins.
How do Cryptocurrency Wallets Work?
The cryptocurrency wallet, contrary to the name, doesn’t store any actual cryptocurrency. Instead, it saves the digital code – called a private key – that proves your ownership of the coins you send and receive. The wallet is a transaction ledger for trading cryptocurrency.
Different Kinds of Cryptocurrency Wallets
Just as there are different kinds of bank accounts, there are different kinds of crypto wallets. How each wallet functions depends on the type. This includes;
- Mobile wallets
- Offline wallets
- Online wallets
- Desktop wallets
- Hardware wallets
- Paper wallets
Mobile wallets are apps for smartphones that act as wallets. A desktop wallet is a computer program that lets you connect directly to a client for easy access. Online wallets are web-based wallets that host information on a server.
Hardware wallets are a USB flash drive designed to protect cryptocurrency securely. The wallets can be used to trade online and then stored offline for added protection. A paper wallet is a printed QR code for public and private keys.
How to Cryptocurrency Exchanges Work?
A cryptocurrency exchange is where people trade cryptocurrencies, either for other crypto coins or for regular FIAT currencies like USD and GBP. These exchanges are where the bulk of cryptocurrency trading happens.
Regular traders will sign up for accounts to get the tools they need for professional traders. Still, there are plenty of more open solutions for occasional traders who aren’t that serious. Several trading exchanges have popped up over the years due to the rise of popularity in cryptocurrencies and trading. Here are some of the best cryptocurrency exchanges available right now;
The Gemini exchange is a fully licensed exchange based out of the United States. Cameron Winklevoss and Tyler co-founded the exchange. The security here is about the best you can get, especially given the fact that the exchange holds USD deposits in an FDIC-insured bank for extra protection.
Coinbase is one of the most recognized names in crypto trading. Many investors consider the platform to be a reliable way to trade cryptocurrency. Millions of people use Coinabse, which makes it a great place to connect to buyers and sellers alike.
Kraken is one of the oldest active exchanges, having been established back in 2011. Kraken partnered up with the first crypto bank and allows users to trade bitcoin using centralized currencies, including the US dollars, Euros, GBP, Japanese Yen, and Canadian dollars.
Bittrex is the best exchange for the newest currencies. The platform is continuously expanding and continues to support blockchain technology, which also changes continuously. This exchange makes it easy for investors to diversify their investment approach and portfolio for cryptocurrencies.
Binance is another major player in bitcoin and other cryptocurrency trading. The exchange was founded in 2017 and quickly became the largest exchange in terms of volume. Binance continues to stand out thanks to endless innovation and efforts to be the best exchange around.
The Poloniex exchange is among the most popular exchanges. The exchange offers one of the most secure trading environments around. Founded in 2014, the exchange hosts over 100 different cryptocurrency pairs for trading. Advanced traders enjoy using Poloniex because it offers unique tools for data analysis so users can learn from their trades and create great trading strategies.
Trading cryptocurrency is more complicated than many people realize. The technicalities involved with the process put your investments at risk just like any other kind of trading. Go in with the right strategy and with a proper mindset, though, and you’ll be on the right path.