How to start trading cryptocurrency
You want to buy some cryptocurrency, but where to begin? This article will walk you through the crucial steps required to start trading.
Asset cards on Cryptowatch’s Assets page shows a summary view of multiple markets.
Cryptocurrency attracts a lot of first-time traders and veteran investors alike. The draw of this emerging tech space (as well as the allure of profit) has people all over the world investing in and exploring a universe of new technologies. If you’ve been interested in crypto, but don’t know where to start, this Guide is for you.
This Guide will walk you through the four most basic, necessary steps to get yourself started in Crypto. One thing you might notice is that nowhere in this article do we mention which crypto to buy — like you would for any investment, you’ll want to do your own research before making that decision.
If you’re starting from scratch — that is, you hold no cryptocurrency or have any trading accounts set up, you can follow these steps to get started trading:
Remember that it’s important to be patient. For most people reading this, signing up to an exchange, funding it, and learning to submit trading orders is a brand new experience. So take your time, be secure, and be ready to learn something new.
If you plan to trade even semi-frequently, consider signing up for Cryptowatch. Cryptowatch’s Charts interface uses a price chart to visualize each market in real time — you can perform your analysis, submit trades and manage your portfolio, all in the same place. Once you’ve signed up to an exchange, you can connect your exchange account to Cryptowatch and start trading for free.
Cryptocurrency wallets come in a variety of forms, each with their own score of advantages and disadvantages. Oftentimes the trade off between one type of wallet and another is between security and convenience. To understand how a wallet works, and which to choose, we need to look at how cryptocurrency is sent from place to place.
Wallets use a pair of keys to send, receive and encrypt cryptocurrency transactions: one public, and one private. Other than its part in encrypting the transaction, the public key acts like an email address for your wallet — if you or someone else wants to send crypto to your wallet, the transaction will require the receiving wallet’s public key.
The private key is known only to the wallet’s owner. It decrypts funds sent to you using your public key, and encrypts funds leaving your wallet. It’s imperative that you alone hold your private key, as whoever owns that essentially owns the wallet.
Keep your private keys safe — only the public key is safe to share. The private key gives you the ability to send funds out of your crypto wallet.
Wallets are classified as being either “hot” or “cold”. A “hot” wallet is connected to the internet — this is required for transactions to take place, but makes the wallet vulnerable to a hack (most anything connected to the internet is at risk). It’s usually recommended to not hold large quantities of cryptocurrency in a hot wallet — instead, only hold the amount of crypto you intend to use.
Cold wallets are disconnected from the internet. Hardware wallets, for instance, are considered “hot” when online and sending/receiving cryptocurrency, but become “cold” wallets when disconnected and stored.
Many cryptocurrencies have a dedicated wallet software. Make sure you get a wallet compatible with the type(s) of crypto you want to store. Below is a run-down of the most popular types of cryptocurrency wallets:
A physical device that connects to your computer, allowing the movement of funds to and from your wallet. Not the most convenient to frequent transactions, but the ability to take it offline (called a cold wallet) improves the security of your stored cryptos.
Hardware wallets are usually compatible with multiple types of cryptocurrencies, but make sure to check before you buy one.
This wallet type exists on a cloud server, making it easy to access from any device connected to the internet. Though very convenient (especially for new crypto-holders), they are constantly connected to the internet (called a hot wallet) and therefore susceptible to a hack.
If you choose to use an online wallet, make sure to pick a reputable service with strong security.
A software that is downloaded and installed on your computer. This is a convenient wallet type for most applications (and generally safer than an online wallet) but if your machine is hacked, infected with a virus, or its hardware fails, you could potentially lose your funds.
Mobile wallets are phone applications, similar to a Desktop wallet. They offer the most convenience if you intend to spend cryptocurrency at a brick-and-mortar shop, but they come with a proportional risk.
Losing your phone or having it hacked opens up the potential to lose your funds. If you use a mobile wallet, always use a passcode on your phone.
If you want to own cryptocurrency, you’ll need to sign up for a spot exchange — at least initially. Spot exchanges involve the actual (and immediate) delivery of the currencies you trade. Derivatives exchanges, like futures markets, are mostly speculative markets that only may result in actual delivery, usually at a later date. If you want to buy-to-own, you want a spot exchange.
Exchanges host a number of markets, which are the playing fields for buying and selling cryptocurrency. In most cases the exchange doesn’t vend cryptocurrency itself — they host markets, where other traders participate in the buying and selling of one currency for another (there are always two currencies at play in any given market).
Signing up for an exchange requires at least some of your personal information — this part can scare off some of the more cautious among us, so here’s why it’s necessary. Reputable exchanges, like banks, are beholden to anti-money-laundering regulations. They use KYC (Know Your Customer) protocols to make sure their customers aren’t “bad actors”, so-to-speak. Your identity will be verified by their application process, and you may have some correspondence with the exchange to make sure your submitted documents satisfy those needs.
When your account is verified, you’re ready to go. If you don’t have any cryptocurrency to begin with, you can use an exchange that offers crypto/fiat currency pairs (eg. BTC/USD). Once you fund your account, you can enter the market by submitting a buy order — but more on this later.
Kraken.com offers a massive (and growing) list of supported markets, supports numerous fiat currencies from around the world, and boasts the most competitive fee structure out there. This exchange has best-in-class security, too — they’ve never suffered a hack to date. Definitely consider Kraken.com for your exchange.
This is a pretty obvious step — if you want to buy cryptocurrency on an exchange, you need cash to pay for it. Something to keep in mind is that at this point you are managing your money. You are seeking out investments and taking on risk. Always be pragmatic when deciding how much of your capital worth you want to commit to any investment — not just cryptocurrency.
Sending funds to an exchange is usually called a “deposit” in the exchange’s nomenclature. Check their funding/deposit page to see what methods are available to you, and pick whatever you deem to be the safest, most convenient, or most expedient, depending on your needs. Most allow wire transfers, an electronic transmission of funds from your bank to another financial service. Since a wire transfer involves dealing with your bank and your exchange, it can take some patience on your part.
Before you make a deposit, check the exchange’s website for:
- The minimum deposit amount
- The minimum withdrawal amount
- The minimum order size for the crypto you want to buy
Many beginners decide to test the waters with very small deposits, then fail to meet the minimum order size for the crypto they want to buy. If their deposit is lower than the minimum withdrawal amount (which sometimes occurs after deposit and trading fees are processed), the funds can get stuck until the trader makes a larger deposit.
Now that you have funds on the exchange, you’re ready to enter the market. Traders communicate their buying and selling intentions to a market using orders. Different order types interact with the market in different ways — for example, a market order buys or sells immediately at whatever the best price is at the time. A limit order lets you choose the price you want to buy or sell at, though there’s no guarantee that the market will ever reach that price.
Those are the two basic order types of which many others are derived. To learn more about market and limit orders (among other order types), check out this Guide:
Below are the basic components of any order form, and what they’re used for:
Order form section
Chooses whether the order is to buy or sell.
If your exchange offers margin trading, this section of the order form is usually how you enable it. Margin trading does not result in delivery of the asset, so if you’re looking to simply buy crypto, just leave your leverage set to “None”.
Used to select which type of order you submit to the market. Read our order types guide to get the skinny on each kind. Keep in mind not all exchanges offer the same selection of order types.
Determines how much of the crypto you are buying or selling. Many cryptocurrencies, like bitcoin, can be bought/sold in fractional amounts.
Not available for market orders. This is where you input the price you want to buy or sell at (for limit orders) and the trigger price of other order types, like stop loss and take profit orders.
This field will show you the total cost of the trade, expressed in the quote currency of the market you’re in.
This is the Kraken: BTC/USD order form as it appears on Cryptowatch.
Buying into a cryptocurrency can be as simple or complex a system as you want to make it. If you’re completely new to investing, a one-and-done order (either market or limit) is certainly the simplest way to do it.
There are other methods out there designed to lessen your exposure to market forces as you buy in. For example, you can try Dollar Cost Averaging — this method involves making repeated buy orders at a fixed time, usually for the same amount of money. The goal is to spread the sum of your investment capital (the balance you have on exchanges for trading) over multiple entry points, catching a range of prices. This can result in a lower average entry price for your investment overall. Dollar cost averaging is an investment practice encountered by most people who make regular payments into a retirement plan.
You can trade directly on Cryptowatch’s Charts page.
Consider signing up for Cryptowatch to submit your trade — Cryptowatch is an all-in-one trading terminal where you can perform analysis, submit trades and manage your portfolio, all in the same place. If you want to learn more about using Cryptowatch as your trading terminal, check out the following Guides:
Ready to dig in a little further? Check out these Guides to learn more about charting basics, active trading, and more:
This is not financial advice. Investing and trading in crypto assets is high risk and not suitable for every consumer. The value of crypto assets may go down or up. As many crypto products and markets are unregulated, you may not be protected by government compensation and/or regulatory protection schemes. You should be prepared to lose money if something goes wrong.