How to trade cryptocurrency

The UK’s financial regulator, the Financial Conduct Authority, has repeatedly issued warnings about the risks of investing in cryptocurrencies. If you buy cryptocurrency, you should be prepared to lose all your money.

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First of all, you need to choose a platform on which to trade. A crypto exchange is a platform, whether a website or a mobile app, where buyers and sellers meet to trade cryptocurrencies.

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Once you’ve weighed the various exchanges and selected one for yourself, it’s time to create an account.

Typically, creating an account with a crypto exchange involves a brief identity check that involves entering some key information about yourself and passing some biometric checks.

This usually means uploading a photo or short video of your face, or looking through the lens of your webcam or smartphone camera, following a series of prompts. This is to verify that you are who you claim to be, and that you are present during the application.

Exchanges have been mandated to follow strict ‘Know Your Customer’ regulations to combat money laundering and frauds. These checks are there to weed out people using your image to open a fraudulent account.

The rules apply to all financial markets. Cryptocurrency trading itself is not otherwise regulated in the UK and you will have no protection if something goes wrong.

Once approved, you will need to deposit some traditional ‘fiat’ currency such as Sterling. From which to buy cryptocurrency.

While many tokens can be bought for fractions of a penny, exchanges usually set minimum deposits – meaning you may have to pay, for example, £10 – even if you only spend 6p on Dogecoin. want to do

After you’ve passed the identity check and met the minimum deposit requirements, you’re ready to start trading.

ways of doing business

Within your chosen crypto exchange, you’ll be able to check current prices for a range of tokens, and see how they’ve performed over the past hours, days, weeks, months and years.

Exchanges will typically show you tokens that are trending up and down in price, new tokens, popular tokens. You can use all this information to decide which coins to buy and sell.

When you buy a cryptocurrency, someone is selling it – both of you are just using the exchange as an intermediary. When there are more buyers than sellers, the price of a token tends to increase – and vice versa.

How and when you choose to buy depends on your approach to investing, what you hope to achieve and your risk tolerance.

day trading

Some investors are day traders, buying and selling tokens in the same day to take advantage of market movements. It provides the potential for quick returns and minimizes the risk of a large drop in prices from one day to the next.

On the other hand, day trading is one such short-term strategy that prevents investors from riding out price declines that may correct themselves over the long term.

swing trading

Swing traders hold coins long term, monitoring asset prices over a period of weeks to determine the best assets to buy, sell and hold.

Watching price movements over longer periods can help traders make more informed decisions, but potentially requires more discipline and the ability not to act impulsively on changes.

position trading

Position trading takes a long term approach on crypto investing. Position traders buy coins in the hope that they will make a profit over the long term, and are less concerned with day-to-day volatility.

Position trading also has the advantage of being able to build up a portfolio over time, starting with a small investment and increasing it over time. The trade-off is that investors may not make quick returns.

What affects the price?

There are countless factors that can affect the price of a cryptocurrency, but supply, demand, and sentiment are key indicators.

When demand is met by sufficient supply, or when supply exceeds requirement, prices remain flat or fall. In crypto, the supply is determined by how the coins are mined.

For example, next year the amount of bitcoin awarded to miners who add blocks to the blockchain will increase from 6.25 BTC to approximately 3.125 BTC.

This massive slowdown in the rate of issuance of new bitcoin could, in theory, drive the price up as the supply becomes constrained. However, if there is a sharp drop in demand, the shortfall in supply will be negligible.

Demand is the other side of the coin. When more people are interested in buying something, the more people who can afford it are willing to pay for its relative scarcity. If, for example, a prominent public figure states that they believe a coin will become very valuable, their endorsement may generate interest and cause demand to exceed supply, driving up prices.

On the other hand, if a coin begins to be seen as less valuable – perhaps due to rumors of proxies with liquidity issues – demand will drop and sellers will need to accept lower prices to get rid of their coins. That’s why prices fall.

Such a scenario hinges on sentiment, i.e. public perception of value can have a direct effect on value. When Ethereum moved from a proof-of-work consensus mechanism to a proof-of-stake mechanism last year, it was predicted that the environmental benefits of the change would make it more sustainable, making it a safer and more valuable investment.

Similarly, crypto prices soared after the collapse of Silicon Valley Bank (SVB) last month. Both SVB and Signature, another US bank that failed, were used by crypto companies such as Avalanche and Ripple for payments between cryptocurrencies and fiat currencies.

The intervention of the US authorities to protect SVB deposits instilled confidence in the market and led to a rise of up to 14% in the price of the leading token. Monitoring the news for changes in these three factors can help predict how prices may change, but countless external factors are at play as well.

how to do business

Once you have chosen a currency to invest in, you will need to navigate to the relevant page within your exchange and select buy.

You will then need to enter the amount of fiat (sterling) currency you want to spend before it shows you how much your chosen cryptocurrency will buy you. For example, £10 can buy you 0.00043 BTC, or 16.36 DOGE.

If transaction fees are involved (they often are), you’ll get partially less from your chosen currency than you would have received for a direct crypto conversion – this is because the exchange charges a fraction of the money you’re paying. Taking a small portion out to the seller of cryptocurrency.

After that, your account will be credited with your newly purchased crypto for you to hold, sell or spend with merchants that accept it. This ranges from a large number of merchants to a small number depending on the currency.

For example, Tesla accepts bitcoin, but don’t expect your Tesco shop to pay with Tether (USDT).

You can choose to sell your crypto for fiat currency, or you can trade it for any other cryptocurrency. The buying process is very similar to buying cryptocurrency with sterling, only you pay with cryptocurrency instead. For example, 16 DOGE can buy you 0.000042 worth of Ethereum. Again, transaction fees may apply.

This is all assuming you want to trade manually – making your own decisions about what to buy and when to trade. There are platforms that can automate the process, with bots that will buy and sell on your behalf when certain trading conditions are met.

eToro also has a CopyPortfolios feature that allows you to automatically copy the trades of successful investors.

How do you store crypto assets?

In order to trade with your crypto assets, you will need to provide your public and private keys. You can’t authorize a trade without these long alphanumeric strings, let alone what you need to know.

Your keys need to be stored in a secure wallet to prevent unauthorized access. Most, if not all, crypto exchanges provide a free wallet in which your keys are stored.

These ‘hot’ wallets live online, which makes them vulnerable to hackers. On the other hand, they are convenient and come with support from the provider via account recovery, for example, in case you forget your crypto exchange password.

You can store your keys offline to keep them away from hackers, but you’ll have to pay for a USB device and you won’t get third-party support if you lose your device or forget your password . Furthermore, once you plug your ‘cold’ wallet into a web-connected computer, your protection against hackers is weakened.

Warning

Whatever you decide to trade, wherever you choose to do it and whenever you buy or sell, you should be aware that crypto is extremely volatile and erratic at times.

This means that if you have been scammed or lost your money due to the collapse of an exchange or token, you will not get any support from the government.

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