How to Start Trading Cryptocurrencies

Cryptocurrencies are a new type of financial asset that can be traded on cryptocurrency exchanges. Trading cryptocurrencies is a huge business today – their joint valuation is around $1 trillion and there are millions of people worldwide doing their best to earn profits by trading them. Cryptocurrency trade is technically easier than trading traditional assets like stocks, for example. Also, the entry threshold to become a trader is much lower, which makes crypto trading accessible to virtually anyone. 

Part 1 – Signing Up for a Cryptocurrency Exchange

1 – Select an Exchange You Can Actually Use

Among hundreds of cryptocurrency exchanges, you should choose the one that best suits your needs. To start, you will need to answer these questions: 

• Is trading crypto legal in your country?
• Does your government allow crypto exchanges in general and the one you are thinking of signing up for (e.g. they are forbidden in India)?
• Are you allowed to trade all or only specific cryptocurrencies? 
• How are crypto taxes on earned profits regulated in your country?

You may not find all answers in one place, but the majority of them can be found in the Support section on the exchange’s website. 

We recommend choosing large, reputable exchanges, as you may experience many serious problems with obscure exchanges that have comparatively fewer active members. Some of the biggest exchanges are Binance, FTX, Coinbase, Kraken, and CEX. 

2 – Examine the Reputation of the Exchange

If you have narrowed down the selection of crypto exchanges, you should do a bit of research. 

• For each exchange, you should be able to find reviews and unbiased opinions. If people giving comments and writing articles frequently tend to name an exchange a scam, it probably is. Just in case, dig deeper in search for information, as the top results on the Google results page may be placed there artificially and mislead you. 
• On the other hand, security issues are something that virtually every exchange experiences. The question to ask here is how an exchange has addressed those problems. For example, if a recent cyber attack was serious and the exchange recovered from it fully and in a transparent way, that would be a good sign. 

3 – Check the Exchange’s Security

You do not have to be a cyber security expert to perform some basic check-ups on an exchange’s implemented security measures. 

• The connection between you and the exchange has to be secure – the address bar in your browser must start with the “HTTPS:” prefix, and not “HTTP:”. 
• The exchange should be using two-factor (2FA) or multi-factor (MFA) identification that strengthens access security by requiring two methods (also referred to as authentication factors) to verify your identity. Usually, those methods are SMS and e-mail. 

4 – The Exchange’s Interface Should Be Comfortable to Use

A cryptocurrency exchange is a product itself. Therefore, it is natural that you are entitled to be able to like how it looks and feels before you start using it. 

• If the sections, menus, data, and options are not intuitive, placed logically, and easy to navigate for you, this means that all other qualities an exchange may have are simply not enough, and such an exchange is not best suited for your needs. 
• The user experience is exactly the thing that initially gave a boost to each crypto exchange that operates successfully today. If you do not feel comfortable using it – skip it. There are many others. 

5 – The Exchange Must Support Dealing with Traditional Money

There is no point in signing up for an exchange that deals only with cryptocurrencies. 

• If you are a new trader, you initially need to fund your trading account and you can do that only with traditional, fiat money. 
• You will probably want to withdraw your earned profits in fiat currency (USD, EUR, etc.).

6 – Keep Fees and Charges in Check

The policies regarding fees and charges differ among the exchanges. 

• The rule of thumb is that an exchange will charge you for each transaction you perform, especially when you sell and take the money out of the exchange. 
• At first sight, the fees might seem insignificantly low, which is fair to say if you perform a small number of transactions. But more frequent trading is going to take a slice from the value of your assets, potentially eating up the profits you make. 

7 – Opening Your Account

The steps are somewhat different from one exchange to another, but many of them allow you to simply open an account by selecting your username, password, cell phone number, and email address for authentication purposes. 

• At this stage, the exchange does not really know who you are and the availability of trading options is largely limited. You can use this provisional status to familiarize yourself with the user interface and get an overall feel of how it is to use the exchange. 
• After completing these initial steps, the system will respond by sending you an email and a text message. The email will contain a link for you to click on. In the SMS, you will find a one-time password (OTP) to enter in the required field on the exchange website, proving your identity. 
• After that, you should receive a notification that the sign-up procedure is complete.

8 – Account Verification (KYC Procedure)

All reputable exchanges now have strictly regulated procedures for identifying their users. They are best known as KYC and AML acronyms. 

• KYC means “Know Your Customer”. The exchange really wants to know who you actually are: what is your name, your date of birth, place of residence, mailing address, cell phone number, bank account information, etc.
• KYC is a mandatory method of fighting potential platform abuses that may involve tax evasion or money laundering (in fact, AML stands for “Anti-Money Laundering”). 

9 – Prepare Your IDs

To pass the KYC/AML procedure, you have to prepare a government-issued ID with a photo. 

• The required document is usually your passport. Some of the exchanges may ask you to send photos of two such IDs. 
• In the USA, you use a driver’s license. Otherwise, use a personal ID card. Other documents that the system might ask you to upload include bank statements, utility bills, payment card photos, etc. 

10 – ID Alone Is Not Enough

Reputable crypto exchanges have introduced an additional layer of security through a verification system, that ensures a user is really who they claim to be.

• It is a common practice for a platform to generate a phrase for you to write down on a piece of paper, along with the current date. You will then need to take a selfie, so that both your face and the piece of paper are clearly visible. Some exchanges may send you a unique code that also needs to be written on the piece of paper.
• Simply follow the instructions and upload what is asked of you. However, do not expect your status to be verified instantly. The exchange’s compliance department will certainly try its best to approve your request as soon as possible, but it is possible that you will need to wait for the confirmation for a few days. 

Part 2 – Funding Your Account

1 – Choose the Method and Deposit the Money

Once you are verified, you will be allowed to fund your exchange account with fiat (or crypto) money. 

• Funding usually means topping it up by using your bank payment card. Follow the depositing instructions step by step.
• Remember, bank cards are not universally accepted: some card brands are, and others may not be. There are also possible restrictions regarding the exact type of card (pre-paid, debit, credit, multi-currency, etc.). 
• If by any chance you already have some cryptocurrency in your personal wallet, you can transfer it to your exchange account.
• Once you have your fiat (traditional) or crypto funds on the exchange balance, you are ready to start trading.

2 – Transaction Processing Time

The time needed for processing your payment may vary, even on the same exchange platform.

• Do not worry if the execution is not instant – the chances that your money disappears are next to non-existent. 
• Even if the transaction fails, your funds will be credited back to where they were sent from. 

3 – Cash Withdrawal and Related Fees

To avoid issues, you should acquaint yourself with the exchange’s policy regarding withdrawals first. 

• Withdrawing the money directly to the card is the most convenient way, but exchanges have different policies regarding it. Information about withdrawals is highly visible on the exchanges’ websites. The time for cash-out transactions is important here, too.
• If the funds you actually receive amount to less than you might have expected, do not blame it (entirely) on the exchange. Each intermediary takes a piece of your cake: the exchange, the card company, and your bank. 

 4 – Crypto Taxes 

After withdrawing funds, do not forget that those profits are by definition subject to taxation.

• In the United States, for example, the IRS taxes cryptocurrency like it does property and investments, not fiat currency. This means that all transactions, from selling coins to using cryptos for purchases, are subject to the same tax treatment as other capital gains and losses.
• Whichever jurisdiction you fall under, you are obliged to comply with current taxation rules.

Part 3 – Start Trading Crypto

1 – Decide Which Coins You Will Trade

There are approximately 10,000 cryptocurrencies out there. Some of them are well-known, and others are defunct, obscure, or still in their infancy. There is no universal advice on which one you should trade. If you are new to crypto, you may start slowly, dealing with more familiar coins like Bitcoin or Ether. 

• Every exchange supports a certain number of trading pairs and that number may be huge. Some of them are focused on well-established coins only (Bitcoin, Ether), while others seek their market opportunity by allowing for trading with new, less known, or obscure currencies. 
• If you are unsure about what to do, it is best to stick with what you know. Although there is no such thing as a “safe bet”, trading with Top 20 or even Top 100 coins should be relatively easy to grasp in a short time.

2 – Start Small

For a beginner, the first steps are just a warm-up and you should not be pressed for time or the imperative to make money. The more you learn about how to trade crypto, the more chances you will have to make some significant profits. 

• In the trading section, select how much money you want to spend on buying a coin. Coins are more divisible than traditional money, so you can buy just a fraction of it. 
• You may try buying a few different coins and watching their prices in the next couple of days. Most exchanges have phone apps, so you can check on your investment in real-time 24/7. 

3 – Develop Your Trading Cryptocurrency Strategy

Selecting a trading strategy that is suitable for you means identifying your risk appetite and sticking to it.

• Some investors are more risk-prone, while others are risk-averse. You need to be honest with yourself and identify how risky an investor you really want to be.
• According to your personal risk-taking preferences, you can be a conservative, moderate, or aggressive trader. However, whichever strategy you opt for, invest only what you can afford to lose! 
• Ironically, the simplest crypto trading strategy actually amounts to no trading at all. This approach is called HODL. You buy some coins when they are severely depreciated and wait until their price rises. Even though there is no specific rule about when you should “unhodl” and sell, the general rule is – the longer you wait, the better. This may lead to high-percentage profits, but you should employ this tactic only if you are ready to lose the funds you have invested when hodling. 

4 – Control Your Emotions

There is no escaping the impact that emotions have on trading. However, not allowing strong emotions to take over your financial decisions is an important step toward success. 

• The euphoria you may experience on your first successful trades can make you view your trading prowess in an unrealistic light. In fact, initial triumphs should be more attributed to luck than skill. 
• Similarly, initial failures should not lead to desperation. Such emotions would be unreasonable, as it takes time to develop proficient crypto trading skills.

Part 4 – Store Your Valuables Safely

1 – Create Your Crypto Wallet

All cryptocurrencies exist in digital form only. They can be stored in a few different types of wallets, specialized just for that.

• Unlike physical wallets that actually contain something inside, a crypto wallet does not physically hold your cryptocurrencies. Instead, it contains the passkeys with which you prove ownership of your crypto assets and can access them on the blockchain.
• There are two main kinds of crypto wallets – software and hardware, each with certain advantages and drawbacks. 

2 – Software Wallets

Software wallets are frequently developed for all major desktop and mobile platforms: Windows, Mac, iOS, and Android. Essentially, they function as applications that you install on your PC or smartphone.

• Software wallets are by definition non-custodial. It means that once the private key unlocking access to the assets is created, the wallet’s owner becomes the only person who can access it. If he/she loses the key, there is nothing that can help them recover access to the assets. In case that happens, the assets are considered to be lost permanently.

3 – Hardware Wallets

When using this type of crypto wallet, your assets are actually stored on a piece of hardware specifically designed for this purpose. Professional traders and cryptocurrency owners prefer hardware wallets due to increased security they provide.

• Another option is to store crypto assets directly on your exchange account. It is necessary when actively performing trading actions, but keeping your coins there for a longer period is not recommended because of possible security issues. A hacker attack, the bankruptcy of the exchange, or any other serious technical or structural problems may lock your coins there for a long time, sometimes even for good, with no possibility to retrieve them at all.

3 – Custodial (Exchange) Wallets

Coins can be stored in your cryptocurrency exchange account, but that is the least safe storage option and should be done only at the time when you actually trade on the exchange.

Part 5 – Exit Strategy

1 – When to Exit Crypto Trading?

Exit strategy refers both to unprofitable investments you would rather exist and those when it is time to cash out the profits.

• If you have sustained losses because of a market crash or bad investment choices, prolonged trading will not guarantee you the recovery of those losses. Sometimes it may be wiser to lay low for a while, suspend trading and wait until the conditions improve.
• On the other side, if you have managed to earn a profit, you may decide to partially or entirely reinvest it or cash out. 
• You can review any decision you make. Whether you will reenter the cryptocurrency market at any time is entirely up to you. 

References:

1. https://complyadvantage.com/insights/cryptocurrency-regulations-around-world/
2. https://www.investopedia.com/tech/190-cryptocurrency-exchanges-so-how-choose/
3. https://www.cryptovantage.com/guides/setting-up-crypto-exchange-account/
4. https://crypto.com/university/crypto-exchange-basics
5. https://time.com/nextadvisor/investing/cryptocurrency/cryptocurrency-tax-guide/
6. https://tradecrypto.com/academy/trading-academy/how-to-trade-crypto/
7. https://capital.com/best-crypto-for-beginners
8. https://boardroom.tv/crypto-wallet-quick-start-guide/
9. https://bitpay.com/blog/types-of-crypto-wallets/
10. https://www.investopedia.com/best-bitcoin-wallets-5070283
11. https://blog.liquid.com/how-to-identify-entry-and-exit-points-when-trading-crypto