Where and how to buy cryptocurrencies?
Traditionally, the fastest way to buy Cryptocurrencies has been via the largest cryptocurrency online exchanges. These exchanges focus exclusively on cryptocurrencies. First, you need to register yourself by providing private information like a Personal ID and a proof of residence, in order to prove that you are eligible to sign up for an Exchange account.
This process can take anywhere from a few minutes to even a few weeks. This depends on how big the exchange is. Recently these exchanges have been getting more registration requests than they were prepared to handle.
Each exchange offers a different variety of cryptocurrencies to trade with. Some accept different fiat money (like the euro or dollar) to buy the cryptocurrencies, while others only deal exclusively with cryptocurrencies.
You can also choose to trade with traditional brokers. They are known for their robust trading software and their safety because they are ruled under stricter regulations. In general terms, traditional brokers simply enjoy a longer presence in the trading market and therefore seem more reliable and keen to respond to customers’ needs and complains.
But if you just want to exchange cryptocurrencies directly with fellow humans, you can do so. By knowing the public key-address of another individual, you can trade your cryptocurrencies directly with them. There are even online services that spot geographically individuals around you, so you can use traditional methods of exchange with your digital money.
How to trade cryptocurrencies at traditional brokers
A number of well-known brokers are all offering cryptocurrency trading. You can start trading there much faster than at the more specialized cryptocurrency exchanges, as these brokers have been in business for many years and are used to processing large quantities of new clients every day.
Many traders prefer these brokers, because they are used to the trading software that they offer and prefer trading more than only cryptocurrencies - i.e. popular stocks (such as Amazon and Apple), “normal” currencies (such as EUR/USD or USD/JPY), commodities (like gold) and indices (such as the S&P500, FTSE100 or the DAX).
To open an account at these brokers you need to register, complete an application form with some trading related questions, and provide the broker with your ID and proof of Address. Some brokers also require phone verification as well. After registration, you will need to deposit your funds.
A few Cryptocurrencies like Bitcoin, Ethereum, Litecoin and other liquid Cryptocurrencies can also be traded on these platforms. Usually, you will need a minimum investment amount.
Multi-asset brokers offer to trade with leverage. For some currencies, like Bitcoin, you can go short or long with a 5 times leverage or even more. For example, if you want to buy Bitcoins with a 1:5 leverage for $100, you will receive 5 times as many Bitcoins, just as if you had paid 500$. The same is working for going short. However, you need to keep in mind that cryptocurrencies are a very volatile investment asset, so before using a leverage you should make sure that you are familiar with the risks of using a leverage in this market.
Exchanges and brokers also charge fees in order to survive, so please keep this in mind and always check the Business model of an exchange before investing.
The spread is the difference between the market price of a cryptocurrency and the broker’s price. That difference is what the broker earns from each one of your trades. Spread sizes differ from broker to broker as well as their services. You will have to find the balance between them since the cheapest broker is not necessarily the best.
The launch of bitcoin futures contracts by exchanges in the derivatives marketplace is proof of how serious trading cryptocurrencies is becoming. This brings new actors to the cryptocurrencies trading floor: hedgers, speculators, margin traders, arbitrageurs… In other words, cryptocurrencies are being traded at the same level and in the same network, as other assets, such as gold and oil, which are part of a market that moves trillions of dollars.
How to buy cryptocurrencies through funds
A cryptocurrency fund is an investment product which professionally manages capital.
Most of these funds invest into cryptocurrency assets like Bitcoin, but also into altcoins or digital tokens. For doing so the investor needs to pay a yearly fee, generally around 0,5% to 2,5% of their investment and occasionally on top of that a commission fee.
The main benefit of investing in a fund is that you do not need to worry about the safety of your investment since the fund is managed by a broker’s expert traders. Besides that, funds are an easier and better-regulated option to profit from the crypto market.
In general, you can choose between three types of funds:
Public funds with a buy-and-hold strategy
These type of funds usually only invest into a single asset, for example only into Bitcoin, Ethereum, Litecoin or Dash. For the service, you need to pay a fee around 0,5% to 2,5% per year or you need to pay a commission fee, which is calculated into the buying price. There are no special requirements for the investor to be able to invest in the fund.
Private funds with a buy-and-hold strategy
Most private funds demand a minimum investment size or you need to be an accredited investor. Public Exchanges do not list them and they do not require to be regulated or to have an investment disclosure. For private funds, you also need to pay a yearly fee.
Hedge funds are only lightly regulated and invest in many different assets which do fit into their criteria.They have active trading strategies including e.g. algorithmic trading, price arbitrage, and leveraged trading. This is also why they can have a higher return. However, if the fund is over performing a benchmark which is known to the investor, you will need to pay a performance fee which can vary between 15-45% plus the annual fee.
In the beginning of cryptocurrencies, it had been very hard to acquire cryptocurrencies. Thanks to exchanges that solely focus on digital currencies it has become quite easy to buy or trade them. This has led to the increasing attention of traditional brokers onto the cryptocurrency market. This development indicates that the whole market is maturing as more known brokers are making it easier than ever to get involved in trading digital money.
Opening a trading account
The details behind opening an account and trading will be covered in the next lessons. If meanwhile, you want to open an account with a broker feel free to do so. you can get yourself familiar with the terms and conditions, the interface and the overall services of the broker/s you choose. Remember you can start trading and practicing with a demo account.
At Tradimo we have partnered with the three most reputable brokers when it comes to cryptocurrencies. When you open an account from this page and deposit you will get offers exclusively for Tradimo learners.
Go ahead and explore!