How to Trade Cryptocurrencies
“How did that little coding project go?”
“Meh, I got a couple of Bitcoins, no biggie”
“What are you guys talking about? Who’s Bitcoin?”
…things you may never have heard before, but even if you have, you’ll probably never hear them again. Gone are the days of people ‘donating Bitcoin’ to obscure struggling torrent sites. Gone are the days of paying 10,000 BTC for two large pizzas. And LONG gone are the patronising laughs we gave when anyone mentioned a little cryptocurrency project they had on the backburner.
We’d all like to make a hefty shiteload of money on our laptops…surprise! Crypto wallets, vending machines, portfolio tools, calendars, and related tools are popping up everywhere. What was once easily mined by solo nerds on their parents’ home broadband has become a whirlwind of mammoth, hydroelectric-powered Chinese and Icelandic mining mega ventures. At home, investors sit wide-eyed and sweaty, popping Pro Pluses with cursors hovering over ‘buy’ buttons. Watching and waiting as heart-wrenching Bitcoin plummets and climaxes race across the screen faster than a hamster’s heartbeat.
I’m being flippant, but everyone who wants to make money with crypto needs to know how volatile they can be. Here’s a chart to illustrate: on the right, you’ll see where everyone started giving a monkey’s. It’s when my mother-in-law called to tell me that it might be nice to have some of the Bitcoins put aside.
Here’s how volatile BTC is:
The yellow and green lines at the base respectively show JPY/USD and CNY/USD volatility, as a point of comparison. Even those doing Yen carry trades in their sleep—when it comes to crypto, volatility is a whole different kettle of fish. On the other hand, this volatility is precisely one of the reasons people are so drawn to trading crypto: big potential wins in a short period of time. In a lot of other respects, it’s just like trading regular currencies.
So how do I trade Crypto?
If you’re one of the nine hundred and ten trillion people Googling “cryptocurrencies” (fake stat), you’ve doubtless been confronted with articles that start out “YOU CAN GET RICH SOOO EASILY WITH [OBSCURE COIN]!!”. Then been facially walloped with barrages of meaningless babble and tripe about self-updating smart contracts, nodes that talk to each other, and decentralised flying bagpipes. Not today, mate—here are some nice tips so even your granny can get started.
1. Choose a trading platform
- You’ll want to look at several things to find a platform that suits you. Compared to direct P2P trading (which is you and a stranger straight swapping cash for crypto), platforms charge fees for facilitating your trades. And, just like picking out a loan, you don’t want to click on the first Google Ad that pops up without thinking about:
- Maximum and minimum trading amounts;
- Whether the platform you’re interested in actually supports the currency pairs you’re keen to trade in. For example, Botswana Pula to Lumens (BWP/XLM) will be less easy to find than Bitcoin to USD (BTC/USD);
- Exchange rates – will your GBP 1000 turn into 0.2 or 0.15BTC? Like any currency exchange, you’ll notice rate differences between sites can be significant;
- Leverage allowed – for those less risk-averse traders, leverage enables you to control a larger amount than your initial payment. Anywhere between 10:1 and 20:1 is standard for crypto, but some sites offer up to 500x for BTC. You’ll be charged trading fees, too;
- Charges – again, just like taking out a loan or opening up an account with a brick-and-mortar bank, some platforms/exchanges charge fees. These can vary from standard cash out and deposit fees to just regular trading transactions;
- Payment options – this has the potential to either make trading simple and quick or have you pulling your hair out by the roots. For example, it’s probably not convenient to make a wire transfer every time you want to buy crypto;
- Reputation – go on forums like BitCoinTalk before you take the word of any one ‘comparison’ site as gospel;
- Advanced features – more for those who have been trading a little while. Just like some mortgage shoppers don’t care about a redraw facility, some cryptocurrency traders won’t give two hoots about whether their platform offers social signal monitoring. Features like hedging allow you to do a bit more compared to vanilla trading;
- Identity checks – Some sites care about who’s depositing/taking out funds. They will make you do things like take photos with verification codes, ID, and bits of your arm showing. God forbid you leave a chunk of your hair out of the photo, as they’ll make you take and retake them until they satisfy everyone of 597 criteria. Other sites don’t care who you are and you can stay anonymous.
- Some of the most popular trading platforms include:
- Kraken https://www.kraken.com/
- Kraken has been around since 2011 and makes Euro trading very simple. It has very high liquidity for Ethereum and supports altcoins (Bitcoin alternatives) like Litecoin, Ripple, and Dogecoin. Major fiat currencies supported include: CAD, GBP, USD, EUR, JPY, and transaction fees are low. If you’re brand new to trading, the layout is confusing as all hell.
Coinbase is headquartered in San Francisco and started in 2012. Like Kraken, it’s got good security and trading is a little easier with their digital wallet. Currency pairs can be limited depending on where you’re located (and there aren’t too many countries supported), but the interface is much more beginner-friendly.
Binance is a newer site for people who already have crypto to deposit – you’ll find it’s at the top of a zillion exchange review sites because it’s growing really, really fast in popularity. But if you’re brand new, you probably want to start with fiat. And all trades are pure cryptocurrency exchanges (crypto-to-crypto vs. fiat to crypto) ONLY. You can withdraw up to 2 BTC or equivalent thereof each day without the selfie crap, and there many different coins including the less frequently traded IOTA, and Walton Coin.
2. Deposit funds in your account
- As with all financial market trading, cryptocurrency trading is riddled with risks. Don’t invest more than you’re prepared to completely, heartbreakingly lose forever and ever and ever. That having been said, you can’t really trade without first making a deposit. Which links back to the part about choosing a platform that supports convenient payment methods.
3. How do I get rich?
- Easy first transactions to start with will probably be things like USD, EUR, or GBP to Bitcoin, or vice versa. Regular money to cryptocurrency is a fiat exchange and will most likely be the first trade you make. Unless you were gifted Bitcoin a while ago and forgot about it—you lucky thing.
- In all cases, the rule is: Buy Low, Sell High. Essentially, you’re betting on what currency will go up so you can have that in store and sell it to suckers at that high rate until the market evens out again.
- You can do this over the long term and hold out for massive wins in years to come (like the lucky early BTC miners who didn’t spend it on pizza) or many times a day.
- Leverage in 100 words
- Leveraging your trades intensifies how much you win or lose. Here’s an example:
Chris thinks: “I’m feeling clever today”, and puts £100 on Ripple going up in value – a vanilla fiat exchange.
Ripple goes up 5%. Chris makes 5% of his £100 less trading fees. Chris is £5 richer.
Stan thinks: “I’m a higher roller than Chris”, and puts £100 on Ripple appreciating, but leverages this 10:1. Stan’s profits are equal to Chris’ £5 but multiplied by 10 = £50.
So Stan wins more this time, but would also have lost much more than Chris if Ripple had gone down.
4. Get your hands dirty
- Probably not the best choice of words considering cryptocurrencies have deep roots in unregulated internet tomfoolery. But once you’ve got a good idea how much you’re prepared to lose, draw the line there and learn by doing.
You can try to look out for signals that the currencies you’re watching might fluctuate a certain way. Given that cryptocurrencies are still (somewhat) in their infancy, any news of potential regulatory changes can cause prices to come crashing down. Also, they’re open to technological problems by virtue of their very nature – exchanges get hacked and things can go south pretty quickly.
Essentially, though, it’s all speculation. And as my economics tutor was (somewhat overly) fond of saying: “Once you hear market news, it’s always too late”.
Oh and please remember, in no way, shape, or form is this article intended as financial advice. Thanks.