How to Trade Cryptocurrencies 2018

Cryptocurrencies have emerged as a new tradable asset class in the financial markets, as a result of the price volatility which has been caused by the increased demand for them. Majority of cryptocurrencies are obtained primarily by mining. However, mining is expensive and is inaccessible to many. An alternative is to buy cryptos through the exchanges or from other holders in direct trades. This has created a market, which has evolved into the cryptocurrency trading that we see today.

Cryptocurrency trading is huge; many cryptos have astounding valuations and outperformed the most established of conventional markets in 2016 and 2017.

  • The volatility in prices makes cryptos amenable to trading.
  • Bitcoin and other altcoins can be traded in a number of ways and in a bi-directional basis.
  • Cryptocurrency trading can be quite risky and demands a lot more care than when trading forex or other conventional markets.
  • Crypto trading is presently unregulated, so traders must be extra careful in their choices of where to trade.
Crypto Broker Highlights

Cryptocurrency Assets – What Can You Trade?

What crypto assets can you trade? This section explains the various cryptocurrency assets available to you.

  1. Tradable assets: The tradable cryptocurrency markets are cryptocurrency CFD trading (which features crypto/fiat pairings), crypto-crypto pairings which are seen on most exchanges, and single asset trading which can be done for the medium to long term on a HODL basis.
  2. Crypto-Fiat Pair Trading: Cryptocurrencies can be traded as pairings with the major fiat currencies such as the US Dollar, Euro and British Pound. A popular example of this is the pairing of Bitcoin with the US Dollar, represented as BTC/USD. A crypto broker comparison shows that many forex platforms now offer various crypto-fiat currency pairs such as ETH/USD, DASH/USD, LTC/USD, etc.
  3. Crypto/Crypto Pairs: The laws in many countries prohibit cryptocurrency exchanges from maintaining accounts with banks, or from accepting deposits in fiat currencies. These exchanges have therefore resorted to a system where the only form of trading is by pairing one cryptocurrency to another cryptocurrency. Some popular exchanges list hundreds of crypto-crypto pairings in this manner. Examples of such pairs are the TRX/BTC (TRON/Bitcoin), ETH/BTC (Ether/Bitcoin), etc.

To summarize, brokers that offer FX platforms tend to offer crypto-fiat currency pairs because they can collect deposits from clients in fiat currencies. In contrast, most cryptocurrency exchanges such as Binance and KuCoin only offer crypto-crypto pairs as they do not collect deposits or pay out withdrawals in fiat currencies.

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Cryptocurrency Trading Costs – What Does it Cost to Trade Cryptos?

The spreads provided by the best crypto brokers for crypto-fiat trading are much higher than for other listed assets such as FX pairs and CFDs. Exchange-based cryptocurrency trading, which features crypto-crypto assets, offers lower costs, even though the costs that are payable are not limited to trading costs. The spread, which is the difference between the bid and offer price for all assets including crypto-fiat currency assets, are highest for the BTC/USD pair. On some platforms, this could be up $150, equivalent to 15,000 pips!

This makes the margin requirements for such accounts very high indeed. You cannot trade this with a $1,000 account. Spreads are lower on other pairs ($20.15 on ETH/USD, $9.87 on LTC/USD) but are still comparatively higher than with other assets.

On crypto exchanges, other costs are charged. These are Maker fees, Taker fees, and transaction fees for deposits and withdrawals.

Other fees include commission costs on direct cryptocurrency trades between two users on an aggregating platform, as well as overnight swaps charged for overnight positions. These swap charges are very high and can erode any unrealized profits made on a crypto trade.

Costs of leaving positions overnight are extremely prohibitive; they can even wipe out unrealized profits and trigger a margin call from the broker. This means that positions and accounts must be well capitalized.

Trading Accounts – What Deals Exist for Cryptocurrency Traders?

Many users wonder whether they are offered different account types for cryptocurrency trading. In general, you can only use one type of cryptocurrency account to trade. Crypto-fiat currency trading is features CFD contract, and these are leveraged. However, you cannot expect to receive as much leverage in crypto trading because of the higher level of risk that goes with it. Brokers will reduce their risk exposure by reducing what they provide as leverage. Most crypto CFD trading platforms offer leverage that ranges from 1:10 to 1:50 maximum. That means that the margin requirements are from 2% to 10%.

To calculate your margin requirements, simply multiply the provided leverage by 100. This gives the % margin needed to setup a position. For instance, leverage of 1:50 (0.02) requires a margin of 0.02 X 100 = 2%. So if it costs $100,000 to open a crypto-fiat position, you will need 2% of that amount as collateral, which is $2,000. On the other hand, exchange-based trading is mostly unleveraged.

Crypto CFD trading comes with demo account provision, so you can try out your hands on trading before committing real money. In addition, demo accounts are unavailable, which is disadvantageous to the trader.
One advantage that cryptocurrency traders have is the availability of advanced charting packages and indicators to aid with technical analysis. This enables the execution of crypto trading strategies based on technical analysis.

Cryptocurrency Trading Platforms & Exchanges – Where Cryptos Are Traded

Crypto-fiat trading is done on a CFD basis. This means that the trader does not own either the crypto or fiat asset being traded. Contracts are purchased, sold and settled based on the entry price-exit price differences. This form of cryptocurrency trading is seen with conventional financial market brokers.

In exchange-based trading, you need to actually own the cryptocurrencies you are trading, which distinguishes this form of crypto trading from CFD trading. This implies that you need a crypto wallet that can hold a base crypto for deposit purposes. Many cryptocurrency exchanges are located in Central and Eastern Europe, as well as in Asia with Hong Kong, South Korea and Singapore being the most popular destinations.

There is yet another form of cryptocurrency trading, in which two users can buy or sell cryptocurrencies to each other on aggregator sites, using the wallets provided on those sites. Prices are generally agreed to by both parties, and do not follow conventional market prices. Buyers of cryptos usually hold them long term, so they can benefit from any price increases that may occur by reselling at a profit. When trading on these sites, please ensure you buy cryptos from sellers who are verified and have a track record of successful transactions.

Deposits and Withdrawal Methods: Choose the Options That Work for You

A crypto broker comparison reveals that the method of cryptocurrency trading will determine the funding and withdrawal options available to you. If you are going to be trading cryptocurrency CFDs on a market maker platform, you will be able to fund your account using fiat currencies. Some brokers also offer a cryptocurrency funding option. You will have access to various funding methods such as bank wires, credit/debit cards and also digital wallets such as Skrill, WebMoney and Neteller. The exact methods available will be stipulated by the broker.

Some exchanges permit limited fiat currency deposits, but the majority do not because of banking restrictions placed by central banks. Therefore, exchange-based cryptocurrency trading requires funding with base cryptocurrencies such as Bitcoin and Ethereum. You will have to purchase these with fiat currency from an external source before you deposit with the crypto exchange. You need to have a Bitcoin wallet or an Ether-based (ERC20) wallet for the deposit/withdrawal transactions. The exchange will require you to send your cryptos to their wallet, for further funding of your account. Withdrawals follow the same pathway, in reverse.

Cryptocurrency deposits on exchanges will attract a commission, due to the compensation payable as a result of mining confirmations. Furthermore, withdrawals are also charged a commission. Beyond the commissions, traders must be able to send funds or withdraw funds from an exchange safely and securely. Ensure you activate 2-factor authenticator to safeguard your transactions.

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Additional Offers & Market Tools – Trading on Aggregator Sites

Cryptocurrency trades on aggregator sites will require the user to create a wallet within the system, then transfer any cryptos from the pre-owned crypto wallet to the newly created wallet. They can then be sold to interested buyers. On the buyer’s end, all that is required is to create a new wallet within the system, and have an acceptable means of fiat payment. You can use your fiat payment method to pay for any crypto purchases. Transaction fees tend to be high, so ensure you get the fiat payment method that is available for your region, and which comes at the lowest cost. Demo accounts are the exception and not the norm.

Demo accounts are only available to crypto CFD traders. Traders who use exchanges and market makers will have access to market tools such as charting software and technical indicators. Access to cryptocurrency news is key to successful trading. Gain access to real-time news feeds from Thomson Reuters, Bloomberg and reliable cryptocurrency blogs.

You can perform your trades using information gained from technical indicators. These are found on market maker platforms and exchanges. It is also possible to use third-party apps such as TradeView so you get standalone resources such as charts.

1
of 5 Forex Broker Forex.com
Currency pairs 80 Currencies
Max. Lever 1:50
Trading size Micro-Lot
Minimum deposit $ 50
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
2
of 5 Forex Broker TD Ameritrade
Currency pairs 80 Currencies
Max. Lever 1:50
Trading size Micro-Lot
Minimum deposit $ 0
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
3
of 5 Forex Broker Interactive Brokers
Currency pairs 100 Currencies
Max. Lever 1:50
Trading size Micro-Lot
Minimum deposit $ 10.000
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
4
of 5 Forex Broker Oanda
Currency pairs 60 Currencies
Max. Lever 1:50
Trading size Micro-Lot
Minimum deposit $ 0
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
5
of 5 Forex Broker Ally Invest
Currency pairs Currencies
Max. Lever
Trading size Micro-Lot
Minimum deposit $
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
1
of 14 ETF Broker Placetrade
ETFs w/ discount 0
Custody fee $0
Min. deposit $ 5.000
Trading from $1,50
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
2
of 14 ETF Broker Betterment
ETFs w/ discount 0
Custody fee 0.25%
Min. deposit $ 0
Trading from $0
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
3
of 14 ETF Broker Lightspeed Trading
ETFs w/ discount 0
Custody fee $0
Min. deposit $ 10.000
Trading from $2,50
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
4
of 14 ETF Broker Robinhood
ETFs w/ discount 3,000
Custody fee $0
Min. deposit $ 0
Trading from $0
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
5
of 14 ETF Broker Firstrade
ETFs w/ discount 700+
Custody fee $0
Min. deposit $ 0
Trading from $0
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
1
of 11 Stock Broker TD Ameritrade
National fees $6,95
Custody fee $0
Intl. fees
Dep. Protection $500.000
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
2
of 11 Stock Broker SogoTrade
National fees $2,88
Custody fee $0
Intl. fees
Dep. Protection $500.000
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
3
of 11 Stock Broker Placetrade
National fees $1,50
Custody fee $0
Intl. fees $1,50
Dep. Protection $500.000
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
4
of 11 Stock Broker Ally Invest
National fees $3,95
Custody fee $0
Intl. fees
Dep. Protection $500.000
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.
5
of 11 Stock Broker Firstrade
National fees $2.95
Custody fee 0
Intl. fees $0
Dep. Protection As per SIPC guidelines.
Go to Broker
Risk warning: Capital can be lost. Terms and conditions apply.

Regulation & Deposit Protection – How it Works for Cryptocurrency Trading

The cryptocurrency market is largely unregulated. The process of recovery of stolen funds is long and arduous, and may not end in success. In addition, the anonymous nature of transactions introduces vulnerabilities which you must be aware of to protect yourself.

Exchanges are not regulated. So you are basically operating solely on blind trust when dealing with an exchange. Furthermore, crypto deposit/withdrawal transactions are anonymous. If you send your coins to a wrong address, they will be lost forever.

In contrast, market makers are financial brokers that are subject to regulation. Transactions and trades can be tracked and monitored, and you can always seek redress from the regulators.
Protection comes in the following ways:

  1. Exchanges offer tools such as 2-factor authentication (2FA), email and IP address whitelists, and an exhaustive verification process which sometimes involves selfies with the trader holding the ID documents to prove ownership.
  2. Aggregator sites verify all users before allowing them to operate.

Please note that with virtually no regulation, you are fully responsible for the protection of your exchange-based crypto funds. Standard government regulation ensures that traders on market maker brokers get access to regulated services and registration with various financial compensation schemes such as the FCA’s Financial Services Compensation Scheme (FSCS). Even those these are not available for crypto exchange trading, you can protect yourself using 2FA and IP whitelists to increase your security when trading on exchanges.

Conclusion:

Trade Cryptos in Multiple Ways

Cryptocurrencies can be traded in the following ways: on exchanges, as CFD assets and via direct sales on aggregator sites. In some countries, face-to-face cryptocurrency transactions are also done.

Cryptocurrency trading has come to stay, and thankfully can be done in several ways. It can be seen from the discussion above that there are many considerations that a trader must make before deciding on which channel to follow. Issues such as regulation, cyber security, deposit/withdrawal methods, trading capital and contract specifications must all be considered.

Ultimately, the goal is to trade cryptocurrencies in an environment which is safe and relatively secure. Attention must be paid to the various cyber security measures put in place for your protection. Always make sure you are on a secure site (https:// or the padlock sign on top) to prevent phishing attacks, and ensure you never enter your private keys on any sites.

Crypto Broker Highlights