Bitcoin and cryptocurrency trading continues to attract investors. With the industry gaining in recognition, more and more people are looking to get involved. The good news is that cryptocurrency trading is not limited to institutional investors or high-net-worth individuals.
On the contrary, individual, everyday investors make up the bulk of cryptocurrency trading volumes.
There are several benefits to trading Bitcoin and other cryptocurrencies compared to the traditional stock market. For example, you can trade 24 hours a day, 7days a week. You don’t have to wait for the markets to be open.
Fees and commissions also tend to be lower while settlement times are much faster. And because the industry is not yet heavily regulated, you can literally set yourself up and start trading in under an hour. No need for lengthy application forms or a mountain of document requirements.
It’s therefore not a question of if but rather how can you start trading Bitcoin and other cryptocurrencies? With so much information out there, it can be difficult to know where to start.
We’ve put together a quick-start guide to cryptocurrency trading so you can kick off your cryptocurrency investment portfolio in a matter of minutes.
Although most traders will still prefer the direct method of cryptocurrency trading (which we’ll discuss below), it is worthwhile to mention that the growth in the sector means there’s an increasing number of platforms that offer a more traditional investing experience.
These cryptocurrency brokers allow you to buy into a cryptocurrency fund without having to register with a cryptocurrency exchange directly or having to handle any cryptocurrencies yourself. You can simply open up an account with one of these platforms to get exposure to a wide range of cryptocurrencies.
You also don’t actually have to do the trading yourself. The funds are managed by professional and more experienced fund managers, and you share in the profits of the fund in relation to your investment.
Some online cryptocurrency brokers, like eToro, also offer a “copy trade” option where you simply choose a trader to copy and your account will automatically mimic their trades. This is again especially useful if you are an inexperienced trader or want a more hands-off experience.
Pros of cryptocurrency brokers;
- Hands-off, less time intensive experience.
- No need to figure out which currencies to buy and when to sell as funds are managed by dedicated professionals.
- Your traditional stock broker might add a cryptocurrency fund which means you can get access to cryptocurrencies without opening up a whole separate account on a different platform.
- Some of these platforms are regulated by the FCA for added peace of mind.
Cons of cryptocurrency brokers;
- Fees and commissions will generally be higher.
- Pay-out times will be longer.
- Finance Magnates published an extensive list of cryptocurrency brokers including which tokens they trade in.
Step 1 – Create an account with a cryptocurrency exchange
Your first step would be to register with a reputable cryptocurrency exchange. The registration process is generally straightforward, requiring only an email and password.
However, your account will have some trading restrictions. To lift these, the exchange will need to verify your identity.
To do this you have to upload a selfie while holding up your passport or driving license. You will also have to provide some additional information regarding your country of residence and address.
Verification can take anything from a couple of minutes to a couple of days, depending on how backed up the exchange is with verification requests.
It is highly recommended that you enable two-factor authentication (2FA) for added security as soon as your account is active.
Coinbase is one of the largest, popular and most reputable exchanges, and they also allow you to buy crypto directly through a digital wallet.
Your choice of exchange would most likely be influenced by the fees they charge. Coinbase fees vary from 1.49% on deposits and withdrawals to a $25 set fees for wire transfers.
Binance doesn’t chare anything on withdrawals or deposits and only has a 0.1% trading fee, while Bittrex’s trading fee is capped at 0.3%.
Step 2 – Buy BTC or ETH
Most altcoins can only be traded by exchanging it for either ETH or BTC. Your next step is therefore to buy Ethereum or Bitcoins. Not all exchanges allow you to directly deposit fiat currencies like GBP, and this is where Coinbase has the upper hand.
You can deposit funds in Coinbase through something called a local currency wallet. Deposits can be made by debit card payment or bank transfers. The latter takes longer but the fees are significantly less.
Coinbase supports British Pounds as well as US Dollars, Euros, Canadian Dollars, Australian Dollars and Singapore Dollars.
Once you have your fiat balance with Coinbase you can use it to buy BTC or ETH in the platform.
Step3 – Trade BTC or ETH for an alternative coin
By this point you will have an Ethereum or Bitcoin balance on Coinbase and you can start thinking about trading it for the altcoin of your choice. Coinbase is great to start with but it only supports 5 cryptocurrencies, including Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic and Litecoin.
This is where having an account with other exchanges, such as Bittrex and Binance, comes in handy. You can transfer your BTC or ETH to these exchanges, which supports a greater variety of cryptocurrencies.
To transfer cryptocurrencies you will need the account address which is made up of a long list of random letters and numbers. Make absolutely sure you get this address right because one wrong character could mean that you transfer your funds to the wrong place without being able to retrieve it.
It’s always better to copy and paste this address rather than typing it out.
You will get this address from your Bittrex or Binance exchange wallet which you will then enter into Coinbase.
The transfer can take anything between a couple of minutes to a couple of hours, depending on how backed up the Blockchain is. So if you don’t see your funds immediately, don’t be alarmed, it might take a while.
Once the funds are there, you can head over to the BTC or ETH Markets on the exchange and start buying the tokens you want.
Step4 – Get a secure cryptocurrency wallet
If you are planning to hold your tokens for longer than two or three days before trading it, it is highly advisable to move your tokens off the exchange and into a secure wallet. Your next step is therefore to open a dedicated crypto wallet for increased security.
This post will guide you to find the best wallet option for your Bitcoin and other cryptocurrencies.
Your crypto wallet will have a unique address for every token that it supports. When you transfer the tokens from the cryptocurrency exchange, it is this address, corresponding to a particular class of token, which you will enter in the crypto exchange withdrawal screen.
Again, it is essential that you get this address right as any funds transferred to the wrong place are irretrievable.
Pros of direct trading:
- Get exposure to a greater variety of cryptocurrencies.
- Profit margins are potentially bigger as you are in direct control of the trades that you do.
Cons of cryptocurrency brokers:
- Bigger security risk as crypto exchanges are often targeted by hackers.
- More hands-on and time intensive trading experience.
Don’t forget about your crypto tax
Back in 2014, HMRC clarified their stance on Bitcoin and cryptocurrency trading in the UK by confirming that you need to report any taxable gains resulting from crypto trades to HMRC.
To make things much simpler for yourself down the line, it is essential to keep records of every cryptocurrency trade that you enter, including buy/sell prices and dates.
Our post on crypto tax will help you to establish which kind of tax you will be liable for, when you have to report it and how much you will have to pay.
Crypto Tax Helper’s easy-to-use Bitcoin and cryptocurrency tax calculator will further help you to calculate your tax liability fast and accurately. If you’d rather not deal with the tax at all, you can simply engage with a specialised crypto accountant who can do the whole process it for you.