Cryptocurrencies are, in layman’s terms, digital money which can be used, often anonymously, to buy goods and services online.
They are, by nature, decentralised and are not tied to any financial system or government.
They are stored either on Bitcoin exchange websites or in digital wallets and can be withdrawn, deposited and transferred, as required, using cryptocurrency addresses.
Whether funds are being stored in a wallet or on an exchange site, all digital locations that house cryptocurrencies have a unique address. It is these which allow for the sending and receiving of funds.
It is relatively easy to sell Bitcoin using exchange sites or sites such as LocalBitcoins.com. You can also use brokerage firm websites or exchange sites to trade cryptocurrencies. You can trade Bitcoin for Ethereum or Litecoin or any number of other coins on the market.
For information on how to trade cryptocurrencies, read on and this guide will take the through the steps of how to trade cryptocurrencies, step-by-step.
You can trade using a crypto trade bot which is a bit like index trading on the stock market. Using brokerage firms, you can front a sum of money and allow the computers to manage your money and trade cryptocurrencies accordingly.
Cryptocurrency addresses are unique strings of numbers and letters, with accompanying QR codes, that look something like this: 15oc46wkW82qvQQ9kYPTm5KR8w9kLyhfss
See below for BTC address (via Poloniex) example:
These are fine to share publicly because they are used only as a reference to receive funds from another digital location. These addresses are what you use to trade cryptocurrencies. You send your coins to one address and receive others into your personal address.
Sending coins simply requires users to log in to their Bitcoin exchange site or digital wallet, type the destination address into the appropriate dialogue box, choose the currency and the amount they wish to send, and approve the transaction.
It’s a very straightforward process which takes place on the blockchain (more on this later) but obviously varies slightly depending on which interface you’re using.
Technically speaking, cryptocurrencies are what are known as digital assets and they rely on cryptography for security; hence the name. FYI, cryptography is the art of writing or solving codes.
The underlying technology which makes all this possible is called blockchain technology but is commonly referred to as simply ‘the blockchain’ (even though many blockchains exist). Some currencies share the same blockchain but each currency only uses one specific blockchain; unsurprisingly, Bitcoin has its own, as does Ethereum and Ripple.
If you wish to trade cryptocurrencies via brokerage firms using options such as CFDs you don’t need to possess much technical knowledge because the firm takes care of the ‘underlying’, i.e., the coins themselves. So you never have to sell Bitcoin (or any other coin) yourself. You can trade cryptocurrencies without having to worry about addresses or the underlying blockchain technology.
Blockchain technology is essentially a digital method of keeping records and exchanging data in an open, decentralized and allegedly incorruptible manner. Think of a blockchain as an open ledger which records the transference of goods, services and of course currency. Again, if you wish to trade cryptocurrencies using a brokerage firm (perhaps with a crypto trading bot), you don’t need to know a hell of a lot about the ins and outs of blockchain technology. However, it’s useful to have a basic understanding…
Described officially as a type of ‘distributed database’, the blockchain maintains a continuously growing list of records called ‘blocks’ (more on these later). Put simply, it’s an ever-expanding ‘peer-to-peer’ digital record of every transaction which has ever taken place.
The advantage blockchain technology has over more traditional forms of ledgers and other methods of recordkeeping is that it is completely transparent and pretty much autonomous.
All parties contributing to the blockchain retain an up-to-date, synchronized version of the database (hence the name, distributed database), eliminating the possibly of corruption or fraud. This is what allows people to trade cryptocurrencies in a safe and secure manner.
Each transaction must be approved by usually five or six (unless otherwise specified for added security) ‘nodes’ (other participants or traders on the blockchain) to guarantee authenticity and to guard against duplicate transactions. To understand how to trade cryptocurrency directly it is useful to have a basic understanding of how the database functions.
Best cryptocurrency trading platforms
There are many brokerage firm websites which are now offering cryptocurrency options. These allow users to trade cryptocurrency by offering cryptocurrency lending services to cater for cryptocurrency day trading and the like.
Cryptocurrency trading is the latest trend in online derivative trading and, as such, new would-be cryptocurrency traders, must choose from a huge selection of sites.
The following rundown will provide you with a bit of information on five of what we consider the best and most reliable brokerage firms which offer cryptocurrency trading options.
Some are better suited to new traders who may never have even considered trading cryptocurrency until now, while others offer slightly better options, so take the time to read each review carefully to allow you to make an informed decision on which cryptocurrency trading platform best suits your needs.
You can sell Bitcoin, along with many other cryptocurrencies on these sites. You can also trade cryptocurrency and use crypto trading bots. The possibilites are endless!
eToro says: “The world’s leading social investment network: tap into the wisdom of the crowds to make smarter investment decisions! Social Trading is about opening the markets to everyone.
At eToro, we encourage people to connect with one another to discuss, trade, invest, learn and share knowledge across the network. From now on, you don’t need to be a pro to trade like one.”
We say: eToro is a social trading and multi-asset brokerage company that has registered offices in Cyprus, Israel and the United Kingdom.
eToro is another fantastic choice for anyone who wants to enter the wonderful world of cryptocurrency trading. It’s simple, fast, and easy to use and, as such, is a great place to start cryptocurrency trading.
Plus500 says: “Plus500 is a leading provider of Contracts for Difference (CFDs), delivering trading facilities on shares, forex, commodities, ETFs, options and indices, alongside innovative trading technology.
With the Plus500 trading platform, you can trade the world’s most popular financial instruments with leverage and enjoy a free unlimited demo account.”
We say: Plus500 is a secure and reliable cryptocurrency trading platform which is, without a doubt, one of the most popular names in the industry. It’s easy-to-use interface and wide variety of competitive spreads makes it the perfect place to begin cryptocurrency trading, whether it’s long-term trading you fancy or a bit of cryptocurrency day trading.
AvaTrade says: “AvaTrade has been an innovative pioneer in online trading since 2006. The company was created as a combined effort of financial professionals and experts in web-commerce with the goal of perfecting the online experience for retail traders. Within a few short years, AvaTrade has expanded enormously, with over twenty thousand registered customers globally executing more than two million trades a month. The company’s total trading volumes surpass $60 billion per month.”
We say: AvaTrade is one of the more well-established brokerage firms so you can rely on them for security and support. They have a web chat service which is useful for new users. AvaTrade’s support desk is multilingual, and is available 24 hours a day so you’ll never be without a helping hand. It boasts an attractive and clean-looking interface which is ideal for beginners and more experienced traders alike. Its headquarters are in Dublin, Ireland, and it was founded way back in 2006, so they must be doing something right.
24 Option says: “24option the world’s leading binary options trading platform. Trade Stocks, Indices, Forex and Commodities.
Get the highest limits & returns! 24option is a fully regulated online binary options brokerage owned by Rodeler Ltd.
Traders can choose from a wide range of global assets, including stocks, indices, commodities and currencies. The sophisticated easy to use trading platform delivers real time financial data, and allows multiple simultaneous investments using four fundamental instruments.”
We say: 24Option is among the top online brokerage firms in terms of features, usability, and rates offered. The company offers loads of the most up-to-date technology on its attractive and easy-to-navigate trading platform; the company has obviously worked incredibly hard to ensure that the service is accessible to the less experienced trader.
How to trade cryptocurrencies
Let’s dive in! Let’s demonstrate buying Bitcoin because, after all, it is the most popular of all the hundreds of cryptocurrencies being traded today.
But, rest assured, the process is the same no matter which cryptocurrencies you plan on trading. For this guide, we’re are going to use eToro’s trading platform to illustrate just how easy it is to begin Bitcoin trading, Bitcoin lending, and Bitcoin day trading.
We will change it up for other coins to give you an insight into the subtle differences between the various Bitcoin trading platforms to allow you to make an informed decision on where you want to trade Bitcoin.
Commissions when buying Cryptocurrencies directly
If you choose to buy Cryptocurrencies via an exchange such as Coinbase you’ll have to pay a commission each time you buy or sell Cryptocurrencies.
The amount you will be charged will depend on the exchange you are using but usually lies between 1% and 5%.
To encourage you to buy more Cryptocurrencies, Coinbase lowers the rate based on how many you purchase, which is a rather sneaky tactic. Coinbase charges a commission of roughly 1.5% when you buy and sell Cryptocurrencies.
So, buying Cryptocurrencies via Coinbase or another exchange will cost you more than it would if you were trading CFDs with Cryptocurrencies serving as the underlying.
Buying Cryptocurrencies with Paypal
If you want to buy Cryptocurrencies with Paypal, eToro (and other comparable brokerage sites) makes this very easy for you. However, if you wanted to actually buy the asset, it’s slightly trickier.
Coinbase only allows you to buy Cryptocurrencies with Paypal if you are a US citizen, which is annoying if you don’t live in the US. For this reason, it is best to use eToro if you want to buy Cryptocurrencies using Paypal.
Buying Cryptocurrencies with Credit Card
If you want to buy Cryptocurrencies using a credit/debit card, you can use either eToro or Coinbase. One advantage eToro has over Coinbase and most other exchange sites is the speed at which you can get verified.
With eToro you can buy Cryptocurrencies almost immediately, whereas with Coinbase the verification process can take days or even weeks. This is another reason why we’d recommend sites like eToro over exchange sites like Coinbase.
Coinbase also enforces annoying limits on how much you can deposit and how much you can withdraw which can be very frustrating for traders who want to buy Cryptocurrencies and sell Cryptocurrencies quickly.
Now that you’re familiar with the basics of cryptocurrency trading, you’re free to trade cryptocurrencies for yourself and familiarise yourself with the ins and outs of Bitcoin options trading. Remember, proceed with caution; it may even be a good idea to practice on the demo accounts, offered by all reputable cryptocurrency trading platforms, to get a feel for cryptocurrency options trading before you invest real money.
Thanks for reading and happy trading!