Bitcoin is gaining lots of attention recently because of its insane rise in price. If you bought it in the early days and held them through all its ups and downs you’re probably rich now! Right now, folks are still joining the bandwagon and trying to buy Bitcoin. They still think that holding them long term will be a good investment since Bitcoin’s price has always been going up. An alternative approach to increase your Bitcoin holdings is thru trading Cryptocurrencies. In this post, I’ll be explaining how can start trading cryptocurrencies.
WARNING: Trading cryptocurrencies is very risky. if you don’t know what you’re doing chances are you will lose money. Trade at your own risk!
- An understanding of basic Bitcoin concepts
- A Bitcoin Wallet
- A place to buy Bitcoins
- A trading platform
- An idea on how trading works
Let’s start with the basics. Before you start trading, you must be familiar with some basic concepts of Bitcoin. I gave an overview of what Bitcoin is in one of my posts. I also discussed some basic concepts like blocks, miners and the blockchain here. I also blogged about Bitcoin transaction fees and confirmation times here. Another thing you need to be familiar with is sending your Bitcoins to different wallet addresses so that you can fund your trading platform.
A Bitcoin Wallet
There are lots of available Bitcoin wallets right now. It is still important to remember that you must always have the private keys/recovery seed of your Bitcoin wallet so that what ever happens, you can still recover your coins.
For mobile users, I highly recommend Jaxx since it also supports different coins other than Bitcoin. It also has ShapeShift built-in for easier conversion from one coin to another.
For PC users, I highly recommend Electrum. Electrum is a full node Bitcoin wallet. It allows you to sign your transactions, adjust the transaction fees and gives you an option to enable 2FA in the event that your PC gets compromised.
A Place to Buy Bitcoins
With Bitcoin becoming mainstream, there are lots of places now where you can buy Bitcoins. One of the most reputable places to buy is Coinbase. It allows you to link your bank accounts and credit cards so that you can easily buy Bitcoins.
From folks in Manila, the most convenient place way to purchase Bitcoins is via Coins.ph. They have multiple cash-in and cash-out options which makes it easy for anyone to purchase and sell Bitcoins. You can reference by previous blog post on how to setup you Coins.ph account.
You can also buy Bitcoins using your credit card at different sites online. What I have used so far are the following:
Once you have your Bitcoins ready, you need a few more steps before you start trading.
A Trading Platform
There are a ton of trading platforms out there and each has their own pros and cons. I use multiple trading platforms depending on the coin I’m trading. Below is a list of trading platforms that you can use:
There are many more platforms available but I mainly use these five exchanges. I like Bitfinex because of different options you can do within the platform. Bittrexx has lots of altcoins which is good for trading. Poloniex has a low withdrawal fee and a good interface for beginners. Binance has some coins that I hold (eg. IOTA) which is not available in the other sites. And lastly, GDAX because of the seamless integration it has with Coinbase.
Choose the platform based on your preference and sign up for an account. You can even sign up in all of them granted there are no restrictions on your location. After creating an account, follow each of the sites verification process so you won’t have any issues depositing and withdrawing from your accounts later. Once verified, go to the wallets section of your chosen platform and generate a new Bitcoin address. Send your Bitcoins to that address and you can now start trading.
An idea on how trading works
Assuming you received your Bitcoins in your trading platform’s wallet you can now start trading. But what is trading? According to Investopedia, trading involves the buying and selling of goods or services between parties. Typically, trading involves Fiat (real money). In our case, instead of using real money, we will be using Bitcoin to buy and sell different altcoins.
The basic premise of trading is simple. You buy something low, and sell it at a higher price. It sounds simple but it’s very hard to do it consistently. In the traditional market, there’s an opening and closing hours for trading. However in Cryptocurrency, trading happens 24×7. If you don’t keep yourself updated with the latest news and don’t regularly check the charts you might lose money in an instant.
So how can you increase your Bitcoins by trading Cryptocurrency? The simple way to buy an altcoin at a low rate, and sell it later at a higher rate. However some folks get confused when they start trading with Crypto. The traditional trader is used to looking at the Fiat value (USD) of a coin instead of looking at its Satoshi value. They sometimes end up being confused as to why their USD value goes up but their Bitcoin amount goes down.
Right now all altcoins revolve around Bitcoin. Sure you can buy some coins with Ether or Litecoin. You even use services such as Shapeshift and Changelly to convert your coins to another coins but those services incur fees. The easiest way right now to buy the coin you like is to have Bitcoins. And since all of them revolves around Bitcoin, their value is also derived from Bitcoin. Let see an example.
Let’s say I have 1 Bitcoin at 18k USD and I wanted to buy Ripple because it’s all the hype right now. I’ll check my platform and look at the BTC-XRP pair (Bitcoin-Ripple pair). As of this moment, XRP is around $0.81 USD and that is equivalent to 0.00004496 Bitcoin each or 4496 Satoshis. Satoshi is the smallest denomination of a Bitcoin. So if I were to use .5 BTC to buy XRP, I will get 11121 units of XRP (that is 0.5 divided by 0.00004496). Now let’s say BTC price goes up to 20k USD. Because you saw the rise in price, you thought to yourself, “I need to get more BTC since its price is increasing” and immediately sold all your XRP back to BTC. After selling your XRP you noticed that you now have less than 1 Bitcoin. So what happened?
First, all trades that you do in trading platforms incur commissions. This is how trading platforms make money. For example, Bittrexx charges all filled orders with 0.25% commission. Second, you probably didn’t check the amount of XRP in Satoshis when you sold. In Crypto, the normal movement of the market is when Bitcoin goes up, some altcoins go down in value. This is because people are selling off their altcoins to buy more Bitcoins which drives the price of Bitcoin up and drives the price of altcoins down (law of supply and demand). However, there are times when some altcoins still increase in value but this is not always the case. So what should you do?
Since our original goal in trading is to accumulate more Bitcoins, we should always look at the Satoshi value of a coin. This means that whenever we buy a coin, we take note of its Satoshi value and make sure that we sell it at a higher Satoshi value later. So in our example above, if we wanted to increase our Bitcoin holdings, we should have sold XRP if its Satoshi value was greater that 4496.
What I wrote above is just a very basic example of how trading cryptocurrency works. It may sound simple but it’s very hard to pull off. It takes a great deal of experience to become a good trader. In my succeeding blog posts, I’ll share some tips on how I usually perform my trade.