Cryptocurrency Trading: What’s It All About?

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I’m sure everyone has at least heard the term cryptocurrency, but what is it? I must admit I have only recently discovered some of the benefits and I have traded stocks, options and forex for quite a while. Is cryptocurrency trading the next big financial vehicle? Will Bitcoin take over as the ultimate form of transferrable currency? If you have heard the term cryptocurrency and are wondering what is it, then this post is definitely for you. In the next few paragraphs, I will explain what is cryptocurrency, some different types of currency, high level benefits and how to get started with cryptocurrency trading.

What Is Cryptocurrency?

Cryptocurrency is a type of digital asset that can be used to exchange value. From a high-level perspective, it is no different than another currency, like the US Dollar versus the EURO. One of the major differences here between cryptocurrency and standard currency is that there are no physical coins or paper associated. These are only digital. To be honest, I think of several futuristic movies whenever I think of cryptocurrency. I’m sure you have heard the line in movies to “pay with credits” or some other digital form of payment. Then they hand over a mini disc or scan a barcode and the payment is received. This is how I would explain cryptocurrency.

Trading cryptocurrency can seem like a foreign language at first, but if you start relating it to what you know, you will be able to trade like a pro.

Currently our technology allows for digital exchanges such as Paypal, Venmo, and most banks have an ePay service. This is similar to using cryptocurrency, however the big difference here is that cryptocurrency is not regulated by a centralized banking system. This means it is decentralized. When someone pays via Paypal or Venmo, the attached bank account confirms the value and transfers the funds electronically. There is usually some kind of charge for this, albeit small, the financial institution receives some payment. I will go into decentralization and the transfer process of cryptocurrency a little later.

Types Of Cryptocurrencies To Trade

Currently, there are over 8,500 different types of cryptocurrencies. If you do intend to start trading cryptocurrency, I would suggest bookmarking coinmarketcap.com. This site gives a lot of information and I could easily talk about that alone for hours, but I would suggest going there and checking it out. It will give you the name, price, day change, market capitalization, and volume for every traded cryptocurrency. For the purposes of this article, I will only discuss a few of the well-known ones.

Bitcoin

Bitcoin (BTC) is the leader in the cryptocurrency world. From a market capitalization, price and utilization perspective, it is the most common. It was created in 2009. Bitcoin started the cryptocurrency revolution. There are companies today that actually pay employees in Bitcoin. Plus, there are stores that accept bitcoin as payment. In addition, there are Bitcoin ATMs that allow you to withdraw bitcoin in the currency of the country you need. If you start trading cryptocurrency, Bitcoin would definitely be a good benchmark for your portfolio.

If you are just starting trading cryptocurrency, it might make sense to start with some of the more well known currencies.

Ethereum

Ethereum (ETH) is arguably the most versatile of the cryptocurrencies. It is the most versatile because it can be used to create your own cryptocurrency. They do this by creating tokens and building a new currency. In fact Ethereum is instrumental in creating many of the other cryptocurrencies that are out in the market currently. A new currency typically goes through an initial coin offering which is similar to an initial public offering for a stock market company. This currency also has the current second highest price and market capitalization.

Litecoin

Litecoin (LTC) was launched in 2011. It typically doesn’t have as much volatility as Bitcoin. This may have been created as an alternative to Bitcoin. You may use this to buy and sell goods, similar to Bitcoin. Also, it is much less expensive per coin. However, the market cap is much smaller as it is in the top ten, but lower on the list.

Tether

Lastly, Tether (USDT) made this list because it is the fourth highest cryptocurrency traded by market capitalization and highest in volume. There have been recent issues with Tether corporation regarding the currency being backed by gold or the US dollar. I would suggest doing some additional research before you consider investing or trading this cryptocurrency.

Benefits of Trading Cryptocurrency

You can trade currencies or you can invest in currencies, but you can also use cryptocurrency to make payments.

When I discuss trading cryptocurrency, I not only mean on an exchange, but as a means of exchanging. This is the first benefit. When you purchase Bitcoin, for example. You buy a portion of a Bitcoin or multiple Bitcoins with local currency. In this sense, it is similar to trading Forex. With forex trading, you buy US dollars against EUROs believing that the US dollar will rise in value. In a similar sense you buy Bitcoin with US dollars believing that Bitcoin will rise in value. The caveat is that you can also use the Bitcoin that you purchase to trade for other currencies, and use to buy everyday items. For more on Forex trading, please check out my post on ‘trading foreign currencies‘.

Decentralization

No centralized point of failure in cryptocurrency

Another benefit of trading cryptocurrency is the decentralization factor. We discussed this briefly earlier, but now we go into more detail. When you pay someone via Venmo, the financial institution that is connected to your Venmo account confirms that the funds are not duplicated. They initiate a removal of your funds and add this to the other account. Now, since Cryptocurrency does not use banks, how are we able to transfer funds securely and successfully? The answer is Blockchain technology and cryptography. Think of this as a massive worldwide network of transaction checks and balances. If you use Bitcoin to pay for something or transfer to another person, the Blockchain will keep a record of the transaction and confirm currency movement.

Security of Cryptocurrency Trading

Lastly, a major benefit of cryptocurrency in general, is the security it can offer. Since it is all digital currency, it’s basically impossible to counterfeit. Plus, the encryption on the blockchain is nearly impossible to hack. Cryptocurrency is not subject to governmental intervention or policies that control the money flow, i.e., the Federal Reserve bank. That is to say, the market dictates the value of the currency, not the centralized government. In addition, with a digital wallet, you don’t necessarily need to store anything on a web server. I will discuss digital wallets in the next section.

How to start Cryptocurrency Trading

By now, the concept of Cryptocurrency has either blown your mind or you are thirsting for more and want to start trading. Below are three steps to get started:

Disclaimer: I receive affiliate compensation for some of the links in this post at NO cost to you. However, these are the best tools I have used and tested that I believe are most effective for launching and running an online business. You can read our full affiliate disclosure in our privacy policy. Also, I am not a licensed advisor, any information within this article is purely my opinion and not an endorsement of an investing strategy.

Open Your Trading Account

Open an account and fund it. Since this is a digital world and digital currency, you will need to connect your existing bank account to the cryptocurrency trading platform. Most allow wire or ACH transfers at zero cost or a small charge. I would suggest Coinbase or Gemini for new investors. If you decide Coinbase, you can get an extra 10 dollars in cryptocurrency right away when you buy 100 dollars of a currency. Keep in mind, it is not a bad strategy to have accounts with multiple platforms.

Click on this link to set up an account with Coinbase and get an extra $10 dollars of Currency.

Decide Which Cryptocurrency to Trade

Pick a currency and decide on a strategy. There are over 8000 currencies available. That is a lot to choose from. I will say, there is a cryptocurrency trading strategy to just invest and hold Bitcoin as the potential currency of the future. However, you can trade cryptocurrencies just like stocks, options and forex. If you do want to trade, I would strongly suggest looking into a trading course to review various strategies.

Keep Your Cryptocurrency Safe

black envelope with cash dollars on marble table

Make sure to keep your currency safe. This is by far the most important aspect of the process. When you are first starting out, a web wallet or mobile wallet can be the easiest. Installing a wallet on your desktop or laptop computer is also possible. Blockchain.com/wallet or Bitcoin.org/en/choose-your-wallet are two sites that you can check out for options.

I would strongly suggest that at some point get a hardware wallet. This is the safest and offers a physical thumb-drive like device that can keep track of your balance.

My Final Take on Cryptocurrency trading

I hope you enjoyed this introduction to cryptocurrency. I believe that there are multiple factors to consider if you want to start trading cryptocurrency. There are various risks with trading anything. It is how we manage that risk that makes us successful. Many people think trading forex or options has risk and it definitely can be unless you manage that risk. For me, cryptocurrency is an alternative investment. I rarely trade cryptocurrency. Mostly I use it as an alternative to traditional investing. My strategy is a buy and hold on this.

That doesn’t mean I discourage it, it simply means that long term investing in this is more my interest. Etoro is a cryptocurrency trading platform that offers an ability to mimic other seasoned traders. I personally do not use Etoro, but that is just because I haven’t researched enough about it. It may be a viable option if you are looking to trade consistently. Also, as with forex trading, I would suggest looking into a sandbox platform to test your strategies before you use real money.