The Basics of Crypto Trading – What you Need to Know

Beginner’s Guide / 21.01.2020

As easy as you may think that trading is merely buying and selling of goods, well, trading in cryptocurrency is the same but a lot harder. Even so, the profits you are bound to generate through crypto trading is worth all the hassles. But first, you have to be familiar with and understand all the basics involved in crypto trading before deciding to invest highly. 

Many investors have testified to the benefits of trading in cryptocurrency. Thus numerous traders have flooded the market, hoping they can get a piece of the pie as well. Regardless, people invest all their money in the crypto trade without adequate cryptocurrency knowledge and end up with soars in their bank accounts. If you don’t take your time to understand the risks involved in the trade, your idea of it being a lucrative business will only make you think otherwise. 

Now that you want to trade in crypto, you should keep in mind a couple of details before taking the driver’s seat in this business venture. Initially, you would need to do thorough research on the cryptos you want to invest in the market. Luckily, here you will get everything you need to know about cryptocurrency trading to get you started right away. 

Cryptocurrency Trading

Before you trade in crypto, you should understand the following commonly used terms. That is;

  1. Cryptocurrency 
  2. Blockchain 
  3. Bitcoin 

Cryptocurrency 

Cryptocurrencies are just like any other currencies that can be transferred from one individual to the other. However, the distinguishing factor lies between encryption, decentralization, and the currency’s digital nature. 

This currency only exists in electronic form (as digital assets) and is not governed by a single body like the regular currency controlled by banks. Therefore, there are no middlemen when transacting in crypto, which means the transaction fee is usually minimal. 

Blockchain 

The cryptography that secures crypto’s financial transactions also links up a list of records (blocks) to form a Blockchain. Satoshi Nakamoto introduced Blockchain to act as the public ledger of crypto known as Bitcoin. Bitcoin Blockchain is the first decentralized digital asset that solves all the issues of double-spending in trading transactions. 

If you own a Bitcoin, you will have a copy of its transactions in a ledger, strengthening trust between you and the other traders involved with that Bitcoin. 

Bitcoin

Mostly, the term bitcoin is used interchangeably with cryptocurrency. However, Bitcoin is merely a digital currency that follows all the rules of crypto. It is not the only cryptocurrency in the market, but it’s popular because it’s the first in the industry. 

The value of Bitcoin varies depending on various factors. For instance, matters such as bad publicity in the press, news, and the media can lead to fluctuating Bitcoin prices, affecting cryptocurrency trade. 

How to Trade Cryptocurrency

There are two requirements you must have to trade in cryptocurrency. That is;

  1. One or two cryptocurrency wallets – Stores the passwords encrypting the coins. It’s like a bank where you can send and receive cryptocurrency. 
  2. One or two cryptocurrency exchange – It’s the field where you can conduct your cryptocurrency trading deals. 

How Cryptocurrency Wallets Work

A crypto wallet doesn’t store cryptocurrency. It only keeps a digital code (private key) securely since it’s the source of ownership that proves your legitimacy for the coins you send and receive. A wallet is a transaction ledger for your cryptocurrency trading

How many Types of Wallets are there?

Like bank accounts, crypto wallets come in a wide range of variety. Contrary, wallets function under certain conditions specific to each type.  

There are still cryptos like bitcoin that can be accessed in more than one mode – mobile app and desktop application. 

The following is a list of all crypto wallets available in the market today;

  1. Mobile Wallet – Can run in a smartphone app.
  2. Desktop Wallet – An app on the pc lets you connect to your client’s coin directly. 
  3. Online Wallet – It is a web-based wallet that requires a real or virtual server to host the data. 
  4. Hardware Wallet – These are USB drives that are solely designed to keep cryptocurrencies securely. You can use the USB device to trade in cryptocurrency online then take it offline once you are done transacting. They are also safe for transporting crypto data. 
  5. Paper Wallet – It’s a print of a QR code for both private and public keys. 

Important Note: Always remember that, whatever the type of wallet you use, once you lose the private key, you will lose all your money in that wallet. Therefore, you should consider securing your passwords in safer storage methods. For instance, you can store your passwords on your PC’s hard drive or a cloud. 

How Cryptocurrency Exchanges Work

A crypto exchange is a site where you can trade cryptocurrencies for other cryptos or the common FIAT currencies like Euros or US dollars. This is simply the playground of cryptocurrency trading

Frequent crypto traders use an ID verified exchange account to access essential trading tools for professional trading. But if you are an occasional trader, you can choose from plenty of platforms to do your cryptocurrency transactions. 

Since the rise of cryptocurrency trading, many platforms host a variety of crypto exchanges for traders. Some of the favorable crypto exchanges include:

1. Gemini

Gemini is a fully licensed US-based exchange co-founded by Cameron Winklevoss and Tyler. This platform’s security is top-notch, especially from the fact that it holds all the US dollar deposits in an FDIC-insured bank.

2. Coinbase

Trusted investors vouch for Coinbase as a reliable exchange platform, and the big fan base of millions of customers makes it ideal for interacting with potential buyers and sellers.

3. Kraken

Being one of the oldest found crypto exchanges (2011), Kraken is a partner to the first crypto bank. Through Kraken, you can trade with Bitcoins in various centralized currencies such as British Pounds, US Dollars, Euros, Canadian Dollars, and Japanese Yen.

4. Bittrex

Bittrex is the only exchange that accommodates newly established currencies. This platform always expands and broadens its proximity to support Blockchain technology, which is also ever-changing. It is an exchange that offers you diversity and investment opportunities in the crypto industry. 

Important Note: The entities, mechanics, and functionality specifics of a crypto exchange run entirely different from those in the regular stock exchange. 

5. Binance 

Binance’s name speaks for itself. Founded in 2017, Binance has quickly become the world’s top cryptocurrency exchange by volume and continuously improves technology.

6. Poloniex

Poloniex is one of the most popular cryptocurrency exchanges with the most secure trading environment. It was founded in 2014, and to date, it has more than 100 different pairings of cryptocurrency. Advanced crypto traders prefer this exchange because of its unique data analysis tools. 

Final Thoughts

Trading in crypto is not a more straightforward task. It involves some bits of technicalities that can put your investment at risk if you aren’t careful. However, this guide has all the necessary information you need to get started on the right track.  

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Wayne is a Blockchain enthusiast and expert in crypto trading. Currently, he covers trendy issues on digital currencies.