By: Steve Smith
As Bitcoin and other cryptocurrencies soar ever higher, it’s capturing the imagination of both not just the young ‘digiarti’ but also experienced traders who trafficked in more traditional assets such as stocks, bonds and commodities. And while it’s sometimes difficult to teach old dogs new tricks, the leap from the latter to former is really not too difficult. Today’s investing advice will help new and old traders understand this market.
There is a misconception that unless one has a deep knowledge of cryptocurrencies, they are overly complicated and investing in them is only suited for sophisticated traders or technology geeks. In reality, investing in cryptocurrencies is just like trading in normal currencies.
As with typical stock or foreign exchange trading, two basic elements are required: a deposit account and a trading platform.
When you first decided to begin trading on your standard platform, what did you do? First, you needed to deposit the dollar amount you wanted to invest into your trading platform. To do that, you made a transfer from your bank (your “deposit account”) to your trading platform. Once the transfer has been completed and the funds are available, they are ready to be invested for trades.
Cryptocurrencies follow a similar process. The only difference is you will not be able to use either your normal bank as deposit account, or your usual trading platform to trade cryptocurrencies. In the blockchain domain “deposit accounts”, where cryptocurrencies may be kept, are called “wallets” and the trading platforms are called “exchanges”.
Exchanges are employed in exactly the same way as normal platforms. Anyone who is already involved in trading, even as a non-professional, will have no difficulty using them. Wallets, however, are used in a slightly different way, but once you have managed the procedure it will become second nature.
Our investing advice breaks this down into 5 simple steps to trade in crypotocurrencies. For example, you may decide to buy Ethereum.
What are the steps you will need to take? As explained, in order to invest and trade cryptocurrencies you must have two tools; wallets and exchanges.
The first step is to establish a wallet, and the second step is to open accounts at least three to four exchanges
Since we mentioned Ethereum as an example, let’s follow the specific steps for this currency.
The specific wallet for Ethereum and all the currencies linked to it (for example, Edgeless, Gnosis and many others) is called MyEtherWallet.
So, the first step, in trading Ethereum and its “sister” currencies, is to open an account for yourself in MyEtherWallet
What is the Procedure?
All you have to do is follow the instructions and create your account on the MyEtherWallet site.
The second step is to open your account in two different types of exchanges:
- One exchange which allows you to change your money into cryptocurrency (ethereum in this case).
- Another exchange which allows you to execute buy and sale transactions (trading) with Ethereum.
Currently there are only a few of the first type of exchanges. The two we recommend are Kraken and TheRockTrading.
The second type of exchanges, those for conducting transactions, are numerous. They include, Poloniex, Jaxx, Bittrex, Liqui and and many others.
You might want to open two or three exchanges of this type. This will give the flexibility and opportunity to trade the cryptocurrency which has the most activity, deepest liquidity and highest assets at any given time.
Now that you’ve established your wallet and exchange accounts, what are the next steps to make your first investment?
The last three steps: are you ready for your first trading?
Step three: transfer your money from your traditional bank.
To do so, go to your traditional “deposit” bank account and transfer (wire transfer) the amount you wish to invest in the exchange of the type 1 (for example, Kraken).
Step Four: change your money into cryptocurrency, for example ethereum.
To do so, enter an ethereum purchase order on Kraken as you would do for any bank account or trading platform and change your U.S. dollars (fiat currency) into an equivalent exchange in ethereum.
At this stage you are ready to take the fifth and final step.
Now that you have ethereum, it can be used to initiate your first trade to establish a position in a cryptocurrency.
Now comes the hard part of decisionmaking:
- Which cryptocurrency to buy?
- What “size” allocation to make or how much money it is wise to risk?
- Which exchange to execute the trade. Some exchanges might have limits for particular currency?
If you can figure out the answers to last three questions, and be nimble enough to transfer digital gains back into dollars, you too can become a crypto-millionaire.