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The popularity of cryptocurrency has increased in the recent past, with more investors adding it to their investment portfolio. If you want to join these investors, there are many platforms where you can purchase crypto tokens and start trading like a pro. However, the crypto world is a complex one and navigating through it can be a challenging task, especially for beginners. Before you buy crypto, you need to decide on the crypto you want to buy, where to buy, and where to keep your coins. This beginner guide on how to buy cryptocurrencies will help you learn the ropes of buying digital currencies with minimal risks.
In This Guide
What is Cryptocurrency Trading?
Cryptocurrency trading is the act of buying and selling cryptocurrencies with the goal of profiting from the price movements. As a trader, you can predict the price direction of an individual crypto against another crypto (BTC/ETH) or crypto against another fiat currency (BTC/USD). Crypto trading is mainly done in two ways – via a CFD (Contracts For Difference) trading account or buying and selling coins through an exchange.
How Does Crypto Trading Work?
Crypto trading is not as complex as most people think. In fact, it’s almost similar to trading other assets such as stocks, mutual funds, and fiat currencies. The only key difference is that crypto markets operate 24/7, allowing traders to trade cryptocurrencies whenever they want. This is not the case with other financial markets, which only operate on working days.
As noted earlier, you can trade cryptocurrencies via an exchange or as CFDs (Contracts For Difference). The former involves buying a cryptocurrency via an exchange and selling it at a better price than what you initially paid for. An exchange also allows you to own the cryptocurrency tokens, and you can store them in your wallet for as long as you want. However, keep in mind that exchanges use complex interfaces, which beginner traders may take time to get used to.
CFDs, on the other hand, allow you to trade cryptocurrency tokens without actually owning them. All you need to do is trade price movements, where you “buy” if you think the cryptocurrency value will rise and “sell” if you think the value will fall. For example, you can trade Ethereum, which is currently valued at $4000. If you think the price will go up, you can long “buy” on Ethereum. If the price rises and you close the trade when the value of Ethereum is $4500, you would make a profit of $500.
Another thing to note is that CFDs allow traders to use leverage. Leverage allows you to invest in cryptocurrency using borrowed money for a chance to make big profits. For instance, if a trading account has a leverage of 50:1 and you have $1000, you can open trades of up to $50,000. Be warned that leverage can also lead to huge losses.
How to Buy Cryptocurrencies: Step-By-Step-Guide
There are so many cryptocurrencies out there, and the process of buying each of them may vary slightly. Below, we have listed standard steps on how to buy cryptocurrencies for beginners:
Step 1: Choose the cryptocurrency to buy
Step 2: Choose a crypto exchange or a broker
Step 3: Register an account with an exchange or a broker
Step 4: Transfer funds to your chosen platform
Step 5: Place your cryptocurrency order
Step 6: Store your cryptocurrency tokens in a secure wallet
The first and most important thing you need to do is to decide which cryptocurrency you want to buy. Since Bitcoin launched in 2009, hundreds of other cryptocurrencies have found their way into the market, with each having its pros and cons. It’s, therefore, important you consider important aspects such as volatility, safety, and legal requirements in your jurisdictions.
To buy a cryptocurrency token, you need to decide whether you want to buy from a crypto exchange or a broker. While these two allow you to buy crypto, they operate differently. A crypto exchange is like a marketplace where buyers and sellers meet to trade cryptocurrencies. This gives you more control over your trade while minimizing fees associated with intermediaries.
However, the interface used on crypto exchange is a bit complex, and you may need technical know-how to navigate easily. But you don’t have to worry about this. Some exchanges have beginner-friendly purchase options that you can try out as a new user. The options, however, come with a cost slightly higher than the one charged when using the standard interface.
A crypto broker, as the name implies, is an intermediary that allows you to trade cryptocurrencies without interacting with an exchange directly. The broker’s role is to provide an easy-to-use interface and execute trades on your behalf. Some brokers also offer extra services like market analysis, trading advice, and storing cryptocurrency tokens on behalf of clients. However, be ready to incur some fees, which are slightly higher than trading on an exchange.
After deciding on whether to use a broker or an exchange, you can go ahead and create an account. Most platforms will request you to enter details like name, email address, date of birth, and password. Some platforms will also require you to verify email or send account verification documents like a passport or ID card.
The next thing you need to do is to fund your account. Most platforms allow you to deposit using Bank Wire Transfer, Credit Cards, and Debit Cards. It can take a few minutes or a couple of days for the money to reflect, depending on the payment method and the platform chosen.
Keep in mind that although Credit Card deposits are allowed, the payment method is expensive. This is because Credit Card providers treat credit card purchases as cash advances, which attract high interest rates. Cash advance fees, which can go as high as 5%, are also charged.
After depositing funds, proceed to place your first order. There are plenty of cryptocurrencies to buy, including Bitcoin, Ethereum, Dogecoin, Litecoin, and Tron. Pick the crypto you want and enter its ticker symbol. For example, if you want Ethereum, you will enter ETH. And don’t forget that you can buy fractional shares of a cryptocurrency.
Your cryptocurrency tokens need to be kept in a secure place or simply free from hackers. You can store them in a crypto wallet connected to the exchange platform. If you don’t like the crypto wallet, you can move your tokens to hot wallets and cold wallets. If you are using a crypto broker, you may not have much control over how your crypto tokens are stored.
Risks of Trading Crypto
Crypto investing for beginners is a high risk business. Therefore, it’s essential you understand all the risks involved before putting your money on the line.
- Cryptocurrencies are volatile – Cryptocurrencies are highly volatile, meaning that the value can drop or rise significantly within a short period of time. While this may sound like good news, it can lead to huge losses.
- Cryptocurrencies are unregulated – Unlike fiat currencies, there are no central banks or institutions that regulate cryptocurrencies. If things go south, you have no one to turn to.
- Cryptos are prone to hacking – Crypto wallets and crypto exchanges are susceptible to hacking, putting traders’ funds at risk.
Alternative Ways to Buy Cryptocurrency
If buying cryptocurrency via an exchange or a broker is not an option for you, you can use other avenues, including:
- Bitcoin ATMs – Bitcoin ATMs are the simplest way to own cryptocurrencies. All you need to do is insert money into a machine and purchase Bitcoin, which is transferred to your crypto wallet. Bear in mind, however, that purchase fees and currency conversion fees are charged at this point.
- Buy stock in companies that own cryptocurrency – Another simple way to own crypto is by buying stocks from companies that own cryptocurrencies. These companies are subject to regulatory oversight, and some may require you to have a brokerage account to buy their shares.
- Crypto Exchange Traded Funds (ETFs) – Cryptocurrency ETFs are investment tools that let you gain direct exposure to crypto prices without taking ownership of the assets. Furthermore, they track crypto prices by investing in futures contracts.
FAQs
Why is crypto too risky?
Cryptocurrencies are too risky because their prices fluctuate significantly within a short period of time. An investment worth millions of dollars today could be worth thousands of dollars the next day.
Is trading crypto a good idea?
Crypto trading is a good investment, but you must be aware of all the associated risks, including loss of capital and hacks. It’s also good to arm yourself with the necessary knowledge and skills to succeed.
Is crypto trading legal?
Some countries legalize crypto trading, while others don’t. However, there is no central authority that regulates cryptocurrencies in general.
Is crypto profitable for beginners?
Yes, crypto trading can be profitable for beginners if they predict the price movements correctly. But before you get into it, make sure you know the basics.
Conclusion
From this guide on how to buy cryptocurrencies for beginners, it’s clear that the process is not as complex as most people think. However, when it comes to crypto trading, there is a lot that you need to consider. You need to research the best crypto to invest in, understand market dynamics, and, most importantly, be aware of all the risks involved. Crypto trading is a risky endeavour, so it’s important you trade what you can afford to lose.