Cryptocurrencies are becoming more popular every year. As a result, more and more people are getting in and want to start trading or investing in cryptocurrencies. Cryptocurrencies are increasingly being discussed in unexpected places.
Successful crypto traders and investors have usually spread and made their fortunes over several years. They made mistakes, learned from them and little by little increased their capital.
However, the crypto market continues to attract new people every day who also want to try their luck in this market. To do that properly, there are a few steps that everyone needs to go through. Usually the first step that is recommended is to create an account on a crypto exchange like Bitvavo and then start trading. Before that, however, there are certainly a few other steps that can be taken, or at least recommended.
What are some of the steps you should take before starting to trade in cryptocurrency?
There are several steps that can be taken before the actual trading or investing in cryptocurrency begins. These steps are recommended for everyone and ensure that some prior knowledge is obtained before jumping in at the deep end. That is, should one eventually decide to start trading in cryptocurrencies. An important rule is: never invest more money than you can afford to lose. The crypto market is volatile, which is also one of the reasons why it is so attractive. Large profits can be made, but the downside is that large losses can also be incurred.
- Everyone should first see if crypto is right for them. – This can be done by literally diving into it and gaining knowledge. You can start by reading blogs and articles about crypto such as on Bitvavo Learn and by watching YouTube videos about crypto.
- Figure out a trading strategy. – There are different strategies, such as long-term and short-term trading, also known as day trading. Once this choice has been made it becomes easier to choose an appropriate strategy.
- Learn how to set up a transaction and how to read crypto charts. – Either by doing research on the internet or by reading our complete article series.
- Find a crypto exchange and start trading – Cryptocurrencies can be traded on a crypto exchange like Bitvavo. Therefore, you will need to make use of one.
Find a crypto exchange
There are a large number of crypto exchanges to choose from. It is therefore important to take your time and find a reliable and safe crypto exchange. Things to watch out for are, for example, the transaction costs, can a stop-loss limit be set or can trading bots be easily used in this exchange? It is also important to look at how many different coins and tokens are offered, how many users an exchange has, what the daily volume is and how good their customer service is. It is also important to check which payment methods a crypto exchange supports.
To find out more about the reliability of an exchange, it is important to see if the exchange has already been hacked. It is also important to look up and read reviews about the exchange. How do other users rate this exchange? Answering all these questions will allow you to make the best possible judgement about whether this exchange is indeed safe and reliable. As a beginner, it is often easiest to start trading on a large and well-known exchange.
Creating a new account on a crypto exchange
Once you have chosen your crypto exchange, it’s time to create an account. A centralised exchange or CEX will also include a KYC (know your customer) procedure. In this KYC procedure, among other things, a photo of a physical proof of identity (like a passport and a selfie) is requested, where the user can protect their social security number and signature. The KYC procedure is a small part of the larger AML (Anti-Money Laundering) policy that is adhered to because of Bitvavo’s cooperation with the DNB (the central bank of the Netherlands). This also ensures the safety of the customer.
The amount of information that a crypto exchange requests during a KYC process can vary. This depends, among other things, on how much a user wants to invest. The higher this amount, the more information a crypto exchange will ask.
Once all documents have been submitted, the crypto exchange will begin the verification procedure. The time a crypto exchange needs to do this varies from exchange to exchange. At Bitvavo this can sometimes be done within an hour during business hours, while at other exchanges it can take days or even weeks. This is partly due to how many requests an exchange has to process.
Once the KYC is finally approved by the exchange, you can start trading. Remember that crypto exchanges are open 24 hours a day. This is in contrast to traditional exchanges, which have daily opening and closing times and are also closed on weekends or national holidays.
Decentralised exchanges or DEXs have no such KYC and AML procedures. On these crypto exchanges you can start trading immediately. However, keep in mind that there is no fiat on/off ramp with a DEX. In other words, it is not possible to trade fiat currency on a DEX, only cryptocurrencies.
Depositing money into an account
With European crypto exchanges, it is generally quite easy and straightforward to deposit fiat money on a crypto exchange. This can be done quickly and easily via Sepa or iDeal.
At Bitvavo, users do not pay any fees to use iDeal and SEPA. It is therefore free to deposit money on the Bitvavo platform when using these payment methods.
Some crypto exchanges only accept cryptocurrency. In this case, crypto must first be bought on an exchange where this is possible. After purchasing the cryptocurrency, it must then be sent to the exchange in question.
Which crypto wallet to use to store cryptocurrency?
Before starting to trade, it is a good idea to decide how the purchased cryptocurrency will be stored. Crypto wallets are used for this and there are several crypto wallet options to choose from.
Hosted wallets
A hosted wallet is a wallet on a crypto exchange. The private keys of these exchanges remain in the possession of the exchange. Hosted wallets are suitable for traders who trade on a daily basis or who want to quickly access their cryptocurrency. With these wallets, there is a risk that if an exchange is hacked, the entire investment of a user will be lost and stolen by the hackers. Hosted wallets are also called ‘hot wallets’, because they are directly connected to the internet and are therefore susceptible to hacks. A strong password and 2FA (two-factor-authentication) are recommended.
Online wallets
With an online wallet, the owner of the wallet is in possession of the private keys. Since they are still directly connected to the internet, they are also hot wallets. There are many online wallets to choose from and it is therefore important to do proper research on their reliability and security. Some hot wallets are specific to certain coins or tokens that run on specific blockchains.
Hardware wallets
Hardware wallets are also called ‘cold wallets’ because they are not directly connected to the internet. As a result, these hardware wallets are seen as the safest form of wallets. These wallets are best suited to holding cryptocurrency for the long term. These wallets are less suitable for fast transactions. The owner of this wallet has the private key in their possession, as it is stored on their cold wallet. These are important and should not be shared with other people and should be stored in several secure places. Whoever has control over the private keys, also has control over the contents of the wallet and thus the cryptocurrency it contains.
What trading strategy to follow?
Before starting to buy cryptocurrency, it is important to choose a trading strategy. Without a good strategy, it quickly becomes nothing more than gambling.
First decide whether to hold cryptocurrency for the long term, or whether to trade in the short term, so-called ‘day trading’. Another alternative is to trade with a trading bot, where trading is automated.
Arriving at a trading strategy consists mainly of three steps.
- Look for patterns – Reading charts and using them to formulate a strategy is looking at the history of a cryptocurrency. The patterns observed in the past can then be applied to the present. However, this never guarantees the actual outcome.
- Make a plan and follow it – Two moments are important here. The first is a point where profit is taken. The second point is to determine how much loss can be made so that a cryptocurrency can be sold before the loss gets too high. Stop-limit orders can be used for this.
- Practice, experiment, and learn from mistakes – There are ways to practice first. So-called ‘paper trading’ is not to trade with real money, but to first try out a strategy with ‘fake’ money. ‘Backtesting’ is another option, where a strategy is run through an old market pattern to see how the strategy fares. This is one of the best and cheapest ways to learn from mistakes.
Buying cryptocurrency
Once an exchange has been chosen, a wallet has been set up and the trading strategy has been determined, the purchase of cryptocurrency can begin.
Bitcoin and Ethereum are the best-known cryptocurrencies. Apart from these two, each crypto exchange has tens to hundreds of other cryptocurrencies in their offerings. It is important to do proper research on the coins of interest. Fundamental and technical analyses are recommended when buying digital coins.
Investors can also use websites that track cryptocurrency prices, such as CoinMarketCap or CoinGecko.
To see which cryptocurrencies you can buy at Bitvavo, click here.
What should you pay attention to when trading cryptocurrencies?
There are a number of points to keep in mind when trading cryptocurrencies that will help you to trade safely.
- Store wallet passwords in multiple, safe places, but do not store them digitally.
- Only a small percentage of people get rich quickly with crypto trading. In most cases, this requires a lot of practice.
- The crypto market is volatile. Price fluctuations of 20% or more in one day can be quite common.
- Start with a small amount to limit risks.
- Use cold wallets as much as possible.
- If it sounds too good to be true, it probably is.
- By practising a lot, you can learn when the best moment to buy or sell has arrived.
Summary
Cryptocurrency is only increasing in popularity. More and more people want to start trading cryptocurrencies. To start with this, it is smart to have a well-thought-out plan.
Start by figuring out a trading strategy and learn to understand and interpret charts on an exchange. After that, find a crypto exchange that suits you and go through the application process, including the KYC procedure. When selecting a strategy you should also decide which wallet best suits your chosen strategy.
After this, you can create an account and start trading. Make a plan and follow it! It might be a good idea to practice with ‘fake money’ before trading with real money. An important rule is to never invest more than you can afford.