Welcome to Trading Brokers step by step guide to trading cryptocurrencies online. Here you will find an easy to understand explanation of cryptocurrency trading. This includes how to trade cryptocurrency online, what you need to trade cryptocurrencies and how to open a trading account with a crypto broker so that you can start trading cryptocurrency online today.
Cryptocurrencies have grown in popularity over recent years. This has led to an increase in the number of people looking to trade cryptocurrency online. Maybe you have heard about this modern form of trading with digital currency and would like to understand more about what it is and how it works. Perhaps you are thinking of owning or investing in cryptos. Either way, this crypto trading guide can help you along the journey.
A cryptocurrency is a digital currency that is traded online between individuals and businesses. Cryptocurrency markets are decentralised, which means they are not issued or backed by a central authority such as a government, central banks or financial institutions. Instead, they run across a network of computers.
There are no physical coins or bank notes with cryptocurrency which makes it intangible. Instead, it remains in a data format online and it is visible at any time on the blockchain ledger. It can be sent from person-to-person via digital currency wallets, via email or most commonly, through the blockchain networks. As it has no physical form, it only exists as digitized currency on the Internet.
When you use cryptocurrencies, trading activity takes place over an online network which is known as the blockchain. A blockchain is a shared digital register of recorded data. For cryptocurrencies, this is the transaction history for every unit of the cryptocurrency, which shows how ownership has changed over time. Blockchain works by recording transactions in ‘blocks’, with new blocks added at the front of the chain.
As a result of complex algorithms, each digital currency can be easily identified, based upon a pre-set programmable code that is built within the software. Since anyone can access the same ledger at any time, this helps to give it transparency.
The blockchain, or the technology that has created these digital tokens, is one of the primary appeals of digital currencies. The reason for this is that there is no other transmission mechanism that is more secure, efficient, cost-effective, and transparent than the blockchain.
A blockchain file is always stored on multiple computers across a network – rather than in a single location – and is usually readable by everyone within the network. This makes it both transparent and very difficult to alter, with no one weak point vulnerable to hacks, or human or software error.
Blocks are linked together by cryptography – complex mathematics and computer science. Any attempt to alter data disrupts the cryptographic links between blocks, and can quickly be identified as fraudulent by computers in the network.
Whilst cryptocurrencies can be spent fairly anonymously, every crypto transaction is recorded on the public blockchain list.
Cryptocurrencies are generated by specialized computers through a resource heavy process called mining. In simple terms, mining is when these machines perform certain tasks to obtain a little bit of cryptocurrency. Some cryptocurrencies have a limit on the number of coins that can ever exist, also called a finite supply.
While Bitcoin is limited to 21 million coins, there are already around 17 million in circulation. The ability to trade partial Bitcoin allows for each of those 21 million coins to be split 100 million times, in theory. However, in practice, most of the current crypto exchanges do not support such small units in trades.
In the cryptocurrency mining process, recent cryptocurrency transactions are verified and new blocks are added to the blockchain digital ledger. Each time a cryptocurrency transaction is made, a cryptocurrency miner is responsible for ensuring the authenticity of information and updating the blockchain with the transaction.
The first cryptocurrency miner to crack the code is rewarded by being able to authorize the transaction, and in return for the service provided, crypto miners earn small amounts of cryptocurrency of their own. These fees ensure that miners still have the incentive to mine and keep the network going.
Known collectively as altcoins, there is estimated to be over 1,000 different types of cryptocurrencies in circulation, including the most popular of the cryptocurrency trading market, Bitcoin.
Bitcoin currently represents a large percentage of the market whilst Ethereum is one of the next most traded cryptos in the market. Bitcoin and Ethereum combined make up the overall bulk of the market. Other cryptocurrencies that are actively traded but may be less commonly available at crypto exchanges are:
The less active or newer cryptocurrencies tend to have limited trading opportunities, which could mean fewer interested buyers when it’s time to sell. Therefore, many beginner traders who are not looking to be overwhelmed with too many options may wish to consider focusing their initial trading on some of the leading types of cryptocurrencies to help ensure an active trading market.
Cryptocurrency trading is similar to forex trading, enabling traders to purchase cryptocurrency with US dollars. When you trade cryptocurrency CFDs (contract for differences) with a broker, you are speculating on whether your chosen market will rise or fall in value, without ever taking ownership of the digital asset.
A CFD is a contract in which you agree to exchange the difference in the price of a cryptocurrency from when you first open your position to when you close it. This enables traders to speculate on crypto prices with a standard trading account rather than purchasing cryptos via an exchange.
Crypto traders will buy (long) a cryptocurrency if they believe the price will increase in value and sell (short) a cryptocurrency if they believe the price will decrease in value. The difference between the price when the trade is opened and closed is the profit or loss of the trade.
For example, you have decided to open a long CFD position on the price of Bitcoin because you believe that the market is going to rise. If you were right about this and the value of Bitcoin increased against the US dollar, your trade would make a profit. However, if the value of Bitcoin fell against the US dollar, your position would be making a loss.
If you want to trade cryptocurrency online, you will need a trading broker to buy and sell cryptocurrencies via a trading platform. You can see a selection of our best crypto brokers below with whom you can open a trading account to buy and sell cryptos online.
ASIC, BVI, CBI, FFAJ, FSA, FSCA, IIROC
Min $100 Deposit
FCA, CFTC, NFA, BaFin, FINMA, ASIC, FMA, MAS, FSA, FSCA, DFSA, JFSA, METI, MAFF
Min $250 Deposit
ASIC, FCA, DFSA, SCB, CySEC, BaFin, CMA
Min $200 Deposit
ASIC, CySEC, IFSC, DFSA
Min $5 Deposit
There are 2 main reasons people trade cryptocurrencies. There are those who are looking to own the cryptocurrency and those who are speculating on an increase or decrease in the price of the cryptocurrency. Speculating on the price is primarily done via cryptocurrency CFDs whereas those who want to purchase and own cryptocurrencies can do so through a crypto exchange.
In general, the cryptocurrency market is considered illiquid because the transactions are processed across multiple exchanges, which means that trades which would be considered comparatively small can actually have a much larger impact on market prices. This is part of the reason cryptocurrency markets are so volatile.
The high volatility and trading volume in cryptocurrencies make them a popular choice for day trading. If you do decide to explore the cryptocurrency market, it is important that you have done your research and developed a money management strategy. For example, between October 2017 and October 2018, the price of bitcoin rose as high as $19,378 and fell to lows of $5,851.
When you buy a cryptocurrency, you are purchasing the asset upfront in the hope that it increases in value. But when you trade on the price of a cryptocurrency, you can buy or sell cryptos to try and take advantage of markets that are falling in price, as well as rising.
The cryptocurrency market is usually available to trade 24 hours a day, seven days a week because there is no centralised governance of the market. Cryptocurrency transactions take place directly between individuals, on cryptocurrency exchanges all over the world. However, there can be some periods of downtime when the market is adjusting to infrastructural updates.
When you buy cryptocurrencies, you’ll need to buy and sell via an exchange, which requires you to create an exchange account and store the cryptocurrency in your own digital wallet. This process can be restrictive and time consuming. It also requires some knowledge of how crypto exchanges work.
But when cryptocurrency trading with an online crypto broker, you do not need to access the exchange directly because they execute your position to the underlying market on your behalf. You won’t need to set up and manage an exchange account, so it can take less time for you to be set up and ready to trade cryptos.
Many brokers offer leveraged trading on rising and falling prices of cryptocurrencies. This enables traders to enter a position larger than they would without leverage. For example, with a trading account balance of $1,000 and 1:5 leverage, you could trade a position size of $5,000 (account balance x leverage). The leverage on crypto trading is usually less than that when trading forex, stocks and other CFDs.
It must be strongly emphasised that whilst leverage can increase potential profit, it also significantly increases the possible loss. It is imperative that you understand the significant risks involved with trading online, especially when using leverage.
If you have taken the time to read through the above, you should hopefully have an understanding of how to trade cryptocurrency. Here is a summary of the key steps:
Trading cryptocurrency online carries an element of risk and can take more time than other forms of investing. You will need to research cryptocurrency, manage your cryptocurrency trades, follow market news and decide how to react to them. It is important to understand the risks and dedication that comes with trading cryptocurrency online.
Before trading cryptocurrency, it is imperative to learn as much as possible about investing in cryptocurrency and how it works. Any mistake could prove to be costly. There is an abundance of free educational materials provided by many cryptocurrency brokers that can help you to improve your trading skills and knowledge.
Most cryptocurrency brokerages will also provide a free demo trading account so that you can practice trading cryptocurrency online with virtual funds in order to familiarise yourself with the trading platforms and practice various cryptocurrency strategies until you feel confident enough to open a real trading account.
In order to trade cryptocurrency online, you will need a cryptocurrency broker account and crypto trading platform to execute your trades. When choosing a broker, there are a few important things to consider such as regulation, commission fees, platforms, tools, education, funding options and customer support.
If you do not have the time to research brokers, you can see a list of our best cryptocurrency brokers that we have already prepared to help traders. If you would like to know more, you can also view our detailed guide on how to choose a trading broker.
If you have made it this far then you may be ready to start trading cryptocurrency online! The next step is to research the different cryptocurrencies to discover which cryptos you have an interest in trading. Perhaps there is a particular digital coin you already have an interest in and some knowledge about. Many brokers will allow you to filter cryptocurrencies according to various criteria in order to narrow down your search if need be.
Some of the most important factors that can help determine cryptocurrency trading performance can be the trading plan and discipline. It is important to have a solid trading plan personalised to your own needs that includes the money management and trading strategy that you will use. Most experts and professional traders would try to not let negative emotions such as fear, anger and greed affect their trading strategy.
Once you know what cryptocurrencies you want to trade online, you can analyse them to help decide if and when you will place your trades. After placing a cryptocurrency trade, you will need to keep track of how it performs and manage it according to your crypto trading plan.
Cryptocurrency trading is a popular choice for active investors who would like to trade a market that is open 24 hours a day. The liquidity of the cryptocurrency market also means that there is ample opportunity to look for trades. It can be suitable for scalping, day trading and swing trading. Traders who would usually trade forex, trade stocks, trade indices, trade commodities, may look to diversify their portfolio.
However, it is important to understand the significant risks involved with trading cryptocurrency online, especially when using leveraged positions. Most experts would suggest trading on a demo account with virtual funds to begin with.
This can be a useful way to familiarise yourself with how to trade cryptocurrency and using trading platforms whilst allowing you to practice your trading strategies until you feel confident and produce consistent results. Most cryptocurrency brokers provide unlimited demo accounts free of charge.