Where can I trade cryptocurrencies is a question often asked by beginners and professional day traders.
The common factor that arises from this question is by those who are new to the world of crypto trading.
Given the fact that cryptocurrencies are new, it is but an obvious question to ask.
However, the question about where to trade cryptocurrencies is rather broad and vague. It is akin to asking where one can trade stocks!
The answer to the above can be given by just citing a few exchanges and brokers. But it is not as simple as it looks.
Depending on where you want to trade cryptocurrencies, the answer can differ. Furthermore, the type of crypto that you want to trade also changes.
This elaborative guide aims to answer the question, where can I trade cryptocurrencies? By the end of this article, you will gain a deep understanding into the world of cryptocurrencies.
You can also comfortably navigate the landscape and be able to find a broker or an exchange to trade cryptocurrencies.
We assume that the reader is already familiar with the basic concepts of day trading, CFD trading, exchanges and brokers.
But before we go any further, the question to ask yourself is your motivation and goals behind cryptocurrencies.
Why do you want to trade cryptocurrencies?
The first and obvious question to ask yourself is the reason behind trading cryptocurrencies. The motivation behind this can be a number of reasons.
Many would answer that the biggest motivation is to make money.
There is no doubt that cryptocurrencies are known to generate high returns. In fact, in the last decade, since the evolution of cryptocurrencies, there have been many who became rich trading cryptos.
At the same time, the volatility in the crypto markets also saw many people losing money.
Therefore, while your intention to make money may be normal, the way you want to buy or trade cryptocurrencies becomes essential.
You simply cannot buy cryptocurrencies at the current price and expect to get rich within a week or two.
You can of course achieve this, but it would require some serious thought. This leads us to the next part of this section about how and where you can buy and trade cryptocurrencies.
What are the different ways to trade cryptocurrencies?
As the crypto market continues to evolve, the average investor now has different ways to gain exposure. You no longer need to just buy cryptos and save it to your wallet.
Below are the most common ways to trade cryptocurrencies.
- Cryptocurrency Derivatives
- CFDs
- Options
- Futures
- Cryptocurrencies
You can see from the above classification that there are different ways to buy cryptocurrency through derivatives. However, when it comes to owning the actual cryptocurrencies, there is just one way to do this.
You can buy cryptocurrencies through an exchange. This is similar to what you would do if you wanted to buy stocks. To buy stocks through an exchange you will need a securities account). Likewise, you will need a cryptocurrency wallet to buy cryptos.
You then need to open an account with a cryptocurrency exchange.
This gives you direct ownership of the cryptocurrency.
On the other hand, you can trade cryptocurrency derivatives. Through derivatives, you do not own the underlying asset.
Contrary to owning cryptos, the derivative products are for speculation only. This means you can speculate on the direction and the volatility of the cryptos.
Cryptocurrency options are ideal to speculate if prices will rise or fall over a specific time horizon. CFD’s on cryptos allow you to enter at a specific price and exit your trade at a different price.
Two main ways to trade cryptocurrencies
Now that you have an understanding of the different cryptocurrency products, let’s talk about the main ways to trade cryptocurrencies.
In the first way to trade cryptos, you can essentially open an account with a cryptocurrency exchange. This enables you to open an account with a cryptocurrency exchange.
You would be depositing your fiat money (USD, EUR, AUD, etc) and exchange or convert them into the appropriate cryptocurrency. This is done at whatever prevailing price the cryptocurrency is trading at.
Once your transaction is complete, the cryptocurrencies are transferred to your wallet, held at the exchange.
You can now hold on to your cryptos and wait for price to appreciate. This can be weeks, months or even years. Meantime, you can use your wallet, if your exchange allows, to buy goods and services that allow crypto payments.
The second option to trade cryptocurrencies is to open an account with a broker who offers cryptocurrency CFDs. This broker, depending on the products they allow enable you to trade in CFDs, options or futures.
When trading any of the derivative cryptocurrencies, you do not need a wallet. Of course, you will still deposit money in fiat money. But in this method, you are merely speculating on the price.
For example, if you trade with Cryptocurrency CFD, then you only need to open a regular trading account. Brokers who offer forex these days also allow CFD trading on cryptocurrencies.
You can then pick up the CFD cryptocurrency instruments and trade on them. There are no complicated wallets to maintain here. The profit or loss that you make from your trade can then be credited or debited from your trading account.
Your trading account is of course held in a USD or EUR, or AUD based currency.
Understanding the Types of Crypto Exchanges
To better understand the implicit differences between trading cryptos directly versus owning cryptos, you need to know how cryptocurrency exchanges work.
In this section, we will take a detailed look into the different types of cryptocurrency exchanges. Primarily, there are just two types of cryptocurrency exchanges. Both of which are detailed as below.
Centralized Cryptocurrency exchange
A centralized cryptocurrency exchange is a central exchange. These exchanges operate in a similar fashion as a stock exchange such as NYSE, or NASDAQ.
It is still a grey area when it comes to regulation for centralized exchanges.
The biggest names in cryptocurrency exchanges are:
- Binance
- Coinbase
- Kraken
- Gemini
These cryptocurrency exchanges are the entry point for the investor. You will need to sign up for these exchanges and create your account. As part of this process, you will also need to verify your account, also known as KYC or know your customer.
While this allows you to own the crypto assets, the anonymity is gone as the cryptocurrency exchange knows your details. But this is all part of regulation and there is no way to circumvent this.
The centralized cryptocurrency exchanges offer good liquidity. Depending on the exchange that you use, you can have the option to choose from many cryptos to just a few. Overall, all the big, centralized cryptocurrency exchanges offer major cryptos.
These include Bitcoin, Bitcoin Cash, Ethereum, Ripple and so on.
The disadvantage of these centralized cryptocurrency exchanges is that your coins are still stored with the exchange. Therefore, any security breach may result in your cryptocurrencies being stolen.
You can of course, create your own wallet and transfer the cryptocurrencies away from the exchange. While this is a bit more secure, you are now responsible for the security of your cryptocurrency wallet.
There are many instances where cryptocurrency investors have lost all their holdings because they forgot their wallet details.
Decentralized cryptocurrency exchange
A decentralized cryptocurrency exchange also works in the same way that a centralized cryptocurrency exchange works. But the biggest difference is that the exchange is decentralized.
Therefore, there is no central authority with a decentralized exchange. The exchange is spread out across the network, making it less susceptible to fraud.
The biggest names in decentralized exchanges are:
- dYdX
- Pancake Swap
- Uniswap
- MDEX
Since the decentralized exchange is spread out, even if a few servers are down, the decentralized exchange can still operate.
This is not the case with a centralized exchange. If the exchange has network problems, then the whole centralized exchange stops.
Decentralized cryptocurrency exchanges are a bit more complicated to use.
Firstly, you cannot convert any fiat money. Therefore, to operate in a decentralized exchange you should already own some cryptos.
You can then use the decentralized exchange to convert one cryptocurrency to another. This offers a good investment opportunity, especially when you find a new upcoming cryptocurrency.
But similar with a centralized exchange, you will be responsible for the security of your wallet.
We have talked about cryptocurrency wallets quite a few times. Let’s go deeper into what a cryptocurrency wallet looks like.
What are cryptocurrency wallets and why you need them?
A cryptocurrency wallet is a wallet where you save your tokens or coins. There are different types of cryptocurrency wallets. But they can all fall into one of the following categories:
- Desktop wallets
- Mobile wallets
- Online wallets
- Hardware wallets
Each of these wallets is secured by a private and a public key. The public key is the address to your wallet. If you want to send or receive cryptocurrencies, you should know the public key. Without this information, you cannot send or receive cryptocurrencies.
The private key is what you will use to transact. It is required, for example, if you want to send cryptocurrencies to someone else.
A private key is similar to your bank account password, whereas a public key is similar to your bank account number.
When you want to send or receive money, you will either have to know the bank account number to which you will send money. Alternately, the person sending you money needs to know the bank account number to send money to.
Cryptocurrency wallets are required if you want to buy and own cryptocurrencies. On the other hand, if you want to trade or speculate, then a wallet is not necessary.
What should you know before you trade cryptocurrencies?
The information provided in this guide on where to trade cryptocurrencies is more than enough to help you decide.
But there are a few things to bear in mind.
When you trade cryptocurrencies on an exchange, there is a specific lingo to learn. The order types can vary and can quickly become complex. Furthermore, depending on the liquidity you may or may not get the best prices, even on an exchange.
On the other hand, when trading cryptocurrencies CFDs with a broker, you will see good enough liquidity. This is because the prices are derived, and the price of the underlying cryptocurrency is basically an aggregate.
Therefore, with cryptocurrency CFD, there are no issues with liquidity. Afterall, the prices of the underlying asset are aggregated and this you get to see the full picture.
Having said that, one of the issues with cryptocurrency CFD trading is that you will have to live with fees. These fees include the spread that you will pay. The spread is a small markup on the difference between the ask and bid prices.
This is how brokers who offer cryptocurrency CFDs make money for the service that they provide to you. Furthermore, cryptocurrency CFD trading is leveraged. So, when you borrow funds from your broker you are in essence trading on margin.
Hence, if you have your crypto positions open overnight, then you will have to pay additional fees as well.
Conclusion – Trading cryptocurrencies or investing in cryptos?
By now you have a clear idea of what it means to trade or speculate in cryptocurrencies. You also learned about the main differences between investing in cryptos vs. trading.
Now, it is time to decide on how you want to proceed.
If you want to invest in cryptocurrencies, you will obviously need to do a bit of learning. This will help you to research the various exchanges. It can help you to understand which exchange to use.
On the other hand, if you are looking to merely speculate on the volatility in the cryptocurrency markets, then trading on cryptocurrency CFDs is the best way to go.
In fact, if you are a beginner at cryptos, it is highly recommended to use a broker who offer cryptocurrency CFDs. There is no complicated terminology to learn. You will trade cryptos just as you would trade forex or stock CFDs.
