What You Should Know Before You Start Trading Cryptocurrencies
January 16, 2018

There are only a few things to know about trading cryptocurrencies. Below are those most important things listed. Do read before getting started:

  • A cryptocurrency exchange is not part of the regular stock exchange. Below we will suggest using an exchange/broker coinbase, but you can also use the related GDAX (the pro version of Coinbase with lower fees). Neither of these is the same as Wall Street and its exchanges (same general mechanics, different specifics, and different entities).
  • A beginner might prefer to trade cryptocurrency stocks on the stock market (GBTC is a trust that owns Bitcoin and sells shares of it; trading this avoids you having to trade cryptocurrency directly). The main Bitcoin stock here in 2018 is GBTC. Be aware that GBTC trades at a premium (meaning bitcoins are generally cheaper than buying shares of the GBTC trust), which isn’t ideal. Also, cryptocurrency trading is a 24-hour market, where the traditional stock market is not. Learn more about the GBTC Bitcoin Trust and the related pros and cons before you invest.
  • The cryptocurrency market is insanely volatile here in 2018. You can make a fortune in a moment and lose it in the next whether you trade Bitcoin, another coin, or the GBTC Bitcoin trust. Consider mitigating risks, hedging, and not “going long” with all your investable funds. 

TIP: If you trade only the top coins by market cap (that is coins like Bitcoin Ethereum), or GBTC, then the chances of losing everything overnight are slim (not impossible, but slim). Other cryptocurrencies are riskier (but can offer quick gains on a good day).

TIP: There are a few sides to cryptocurrency:-

1. You can trade and invest in it,

2. You can use it for transactions (anywhere a coin type is accepted),

3. You can break out a graphics processing unit and some software and mine coins.

Those are all valid and interesting, but with that in mind, this article is focused on “trading” cryptocurrency (and therefore also investing in it). With that said, even if you want to do the other things with cryptocurrencies, you still essentially need to be set up for trading.

On cryptocurrency mining: As noted, one way to invest in cryptocurrency is via cryptocurrency mining. That is a valid way to start investing if say you love computer gaming and need a new rig and want to invest in small amounts of cryptocurrency while maybe making back some of the cost of the rig (and maybe even breaking even)… but that is a whole other subject. The average investor will want to trade USD for cryptocurrency on an exchange and avoid the complexities and investments of mining. In all cases, unless you already have a good rig with a great graphics card, you’ll need to put down USD upfront anyway.

For those who want to trade cryptocurrency despite the above notes:

  • You should start by choosing a company with a good reputation that offers an exchange and wallet (to help keep the process simple).
  • You should also start by trading prominent coins, so in 2018 that is coins like Bitcoin (BTC) and Ethereum (ETH)… in the future, this could change.

TIP #1 : A good first foray into cryptocurrency investing is the obvious, buying a major cryptocurrency like Bitcoin. After that, you’ll likely want to trade USD for crypto on an exchange like GDAX. After that, you should try trading BTC and ETH for other cryptocurrencies. Trading “crypto pairs” can be rewarding, but it is more complex and often more risky than just buying a single cryptocurrency as an investment.

TIP #2 : Do not do “margin trading” unless you know exactly what that is. Cryptocurrency is volatile and you can end up losing all your money in an instant if you aren’t careful.

TIP #3 : If you don’t understand the tax implications of trading cryptocurrency trade very carefully. There are some really nasty traps to fall into when trading coins (because they aren’t necessarily considered “like-kind assets.”) If that is confusing, then consider sticking with trading USD for coins in coin base until you grasp the concept. Learn thoroughly about cryptocurrency and taxes.

For mores such insights, visit our website Professional Traders Club

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