Are you interested in buying or selling cryptocurrency? If so, you’re not alone. Increasingly, investors at every level are looking at the benefits and risks of crypto and deciding to add cryptocurrencies to their portfolios.
At Addition Financial, we believe that our members should have all the data they need to make informed decisions about their investments and their money. It’s for that reason that we’ve put together this quick reference guide to crypto trading, including the best places to buy and sell cryptocurrency.
How Does Cryptocurrency Trading Work?
Let’s start with cryptocurrency trading. The term trading implies something more than buying and selling – and there’s a good reason for that.
The primary difference between cryptocurrency investing and crypto trading is time. In most cases, investments are meant to be long-term. You buy stock and hold it in the hopes that it will appreciate over time.
The same is not true for crypto trading, which is usually a short-term endeavor. When people trade commodities, they do it to hedge against the item’s volatility. You may have heard of futures trading, a risky endeavor that involves hedging against the future price of a commodity.
Cryptocurrency trading is popular because investors believe they can capitalize on the high volatility of digital currencies. One of the methods that you may have heard about is CFD trading. CFD stands for a Contract for Differences and it is banned in the United States. The reason it has been banned is because of its highly speculative and risky nature.
There are three basic types of trading that apply to cryptocurrency:
- Day trading occurs when a trader enters and exits a contract on the same day. It’s possible to lose or gain money quickly with day trades.
- Swing trading occurs when a trader follows short or intermediate trends that last between one and 30 days. It’s less risky than day trading but still carries some significant risks.
- Position trading occurs when a trader buys an asset and holds onto it. It’s less risky than the other options but it’s also easy for traders to get complacent and lose money.
We strongly recommend against any kind of day trading. The risks are extremely high due to the volatility of cryptocurrencies.
What Do You Need to Trade Cryptocurrency?
One of the best things about buying and selling cryptocurrency is how easy it is to do. You will need only two things to get started.
#1 Cryptocurrency Wallet
The first thing you will need is a cryptocurrency wallet. Keep in mind that a wallet may be hot or cold. A hot wallet is one that’s linked to the web and potentially vulnerable to hacking. A cold wallet is not linked to the web and thus, is more secure than a hot wallet.
There are various kinds of crypto wallets to consider based on your preferences:
- Online wallets are stored online and are the most vulnerable to hacking.
- Mobile wallets are stored on mobile devices and are also potentially vulnerable.
- Desktop wallets are stored on a computer desktop and may be more secure than online or mobile wallets if the device they’re on isn’t connected to the internet.
- Hardware wallets are portable devices that have a lot in common with thumb drives, in that they can be detached from a computer and stored anywhere.
- Paper wallets are old school but potentially the most secure option. You can create a paper wallet with a key generator program. The wallet itself consists of two printed strings of characters and two QR codes.
You should choose a secure option to minimize the risk that your cryptocurrency will be stolen by hackers. A cold wallet stored on a desktop that is never used to access the web, or a hardware wallet or paper wallet, is going to be far more secure than anything that you store online.
#2 Access to a Cryptocurrency Exchange
The second thing you need to trade cryptocurrency is access to an exchange. A cryptocurrency exchange is a market where you can buy, sell and trade cryptocurrency. Creating an account is usually as simple as getting a crypto wallet and funding it with a fiat currency (such as the US dollar).
Best Places to Buy and Sell Cryptocurrency
Now let’s review the best places to trade crypto. You have options because there are mobile apps and online exchanges.
Binance.US
Forbes chose Binance.US as its Best Crypto Exchange for 2022. It offers traders some distinct advantages, including the option to buy 50 types of cryptocurrency from well-known options such as Bitcoin and Ethereum to Binance’s proprietary stablecoin, BNB.
You can save money as a frequent crypto trader by converting the dollars you invest to BNB. They also have a tiered fee system that kicks in for high-volume traders. However, you should know that the volume discounts don’t start until you’ve traded at least $50,000 of cryptocurrency in 30 days.
There is currently no margin trading allowed on the platform. The reason (and this applies to most of the platforms we’ve included here) is that the US government is investigating how to regulate crypto margin trades.
Coinbase
We’d be remiss if we didn’t include Coinbase on our list. It also receives high marks from Forbes and was named the Best Crypto Exchange for Beginners. The biggest selling point for Coinbase is that you can buy and sell 100 different crypto coins, including Bitcoin. They have an easy-to-use interface that makes trading crypto simple and intuitive.
The main reason that Coinbase gets singled out for beginners is that the platform rewards new investors for learning about cryptocurrency. It’s also one of the safest platforms available, making it a good choice for anybody who wants to get their feet wet with crypto but has concerns about security.
The one caveat with Coinbase is that their fee structure is unnecessarily confusing and in many cases, their fees are higher than those charged by other exchanges. You’ll save money on trading fees if you upgrade to Coinbase Pro.
Kraken
Kraken is one of the world’s oldest cryptocurrency exchanges, having opened back in 2011 when cryptocurrency was still a new idea. In its early days, it was criticized for a lack of security but has since redeemed itself by making security a priority.
One of the things that sets Kraken apart as a crypto trading platform is that they still support margin trading. They also offer over 120 coins for trading, more than most other platforms.
Another good quality of Kraken is that their trading fees are reasonable and lower than many others on our list. The biggest downside is that their platform is not a good one for beginners because it has some complicated features and the interface isn’t as intuitive as it could be.
Crypto.com
If you prefer to do your crypto trading on a mobile app, Crypto.com receives high scores for its usability and the large number of cryptocurrencies available for trading (more than 250 as of April, 2022). Like Binance, Crypto.com has a proprietary stablecoin called Cronos (CRO) and offers discounts to traders who use it.
One of the most unique things about Crypto.com is that they provide traders with a crypto debit card that they can use to spend their digital currency. The app interface is robust – more so than other exchanges where the app offers only a watered-down version of the online platform.
You should know that the trading fees on Crypto.com are on the high side and only decrease with high volume trading.
Gemini
Gemini is a crypto exchange that gets very high ratings for its security. Unlike many other exchanges, they are SOC 2-certified, meaning that they have submitted to a comprehensive third-party audit to ensure they comply with SOC 2 regulations.
The biggest advantage of trading with Gemini is that, if you use a hot wallet (one that’s linked to the web) they will insure the contents. That’s not something provided by any other exchange and it offers traders some peace of mind that they can’t get elsewhere.
Gemini offers 75 cryptocurrencies for trading. The biggest downside of choosing Gemini is that their trading fees are on the high side and the only way to reduce them is by upgrading to their active trader platform.
KuCoin
Our final choice of cryptocurrency exchange is KuCoin. It offers a proprietary stablecoin called KCS and you can trade over 350 different coins using their platform.
The primary reason we selected KuCoin for our list is that their fees are some of the most affordable we’ve seen. You can decrease their already-low fees by as much as 20% if you pay with KCS. They also offer automated and margin-based trading.
What we don’t love is that, while you can use US dollars to buy cryptocurrency, the method involves using an OTC peer-to-peer system that’s complicated and may be daunting to beginners.
Trading cryptocurrency can be both fun and profitable. You should start by getting a secure crypto wallet and finding a crypto exchange that offers the features and security you want. From there, we recommend educating yourself about cryptocurrency and starting small to minimize your risks.
Do you need help managing your crypto investments? Click here to learn about the MEMBERS Financial Services program and schedule a free consultation with one of our Financial Professionals.
Posted on May 25, 2022
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