A lot of people have been asking me this question, how do I trade cryptocurrencies? I want you to understand it’s a complex question and I cannot for sure give you a direct answer but I will provide you with a step by step guide on how you can go about the process.
Lets start by explaining what cryptocurrency trading is. Now it is time to enter the dragon like Bruce Lee, aya!!!
What is Cryptocurrency Trading?
It’s a process of buying and selling cryptocurrencies on a crypto exchange. Entering a cryptocurrency trade isn’t a guarantee that you will make profits, markets can swing either ways so you can either make gains, losses or just consolidate your positions.
Who Trades Cryptocurrency?
Cryptocurrency trading is done by a trader. The trader can be a professional trader, in this case the person makes his living from trading cryptocurrencies and can be paid to secure his services. Another type of trader is the normal trader, with little or no training in trading cryptocurrencies. You and I fall under this category, we simply just buy low and sell high.
What do you need to trade cryptocurrencies?
- You need to own a cryptocurrency: Ever heard the saying you need money to make money? In this context, you need cryptocurrency to trade cryptocurrencies. You first need to own a cryptocurrency. In Africa you can directly buy cryptocurrencies through your bank account with Luno, another option for people in Nigeria and Ghana is First Kudi. Coinbase serves similar purpose in America, while Kraken and Eterbase are used in Europe. Here you simply buy a cryptocurrency you would use in trading. Like in Forex trading where you need to buy a foreign currency like Dollars, Pounds or Euros with your local currency from your bank account.
- Buy a Base Cryptocurrency: Now the question arises, which cryptocurrency would you be buying in step one. You need to purchase a base cryptocurrency. A base cryptocurrency is the main cryptocurrency that is used for trading in cryptocurrency trading pairs on exchanges. For cryptocurrency exchanges, you’ll need to have one of these cryptocurrencies before you can actually trade. In most cases, these are the most popular cryptocurrencies that you could buy. These include Bitcoin, Ethereum and Stablecoins but sometimes exchanges also have other options, including their utility tokens. This could include tokens like Binance’s BNB, Kucoin’s KCS or Eterbase’s XBASE, which are their native tokens. In Africa you can easily purchase base cryptocurrencies like Bitcoin and Ethereum directly using your bank account on Luno, Paxful or First Kudi. Now that you have a cryptocurrency or base cryptocurrency, you are about to enter the second stage in the dragon. Time to unlock your inner Bruce Lee, yah!!!
1. Create a Cryptocurrency Exchange Account: A cryptocurrency exchange is where cryptocurrencies are traded. In order to trade cryptocurrencies you need to open an exchange account. There are different cryptocurrency exchanges and are ranked according to their trading volume. The biggest cryptocurrency exchange is Binance.
Here are URLs of some cryptocurrency exchanges
2. Verify your Exchange Account: Due to government laws and financial regulations most cryptocurrency exchanges require their users to verify their identity before trading. Here you simply need to provide your means of identification and follow some outlined steps by the exchange to verify your account successfully.
3. Enable 2-Step Verification(2FA):
This is an extra layer of security for your cryptocurrency exchange account. When logging into your account after entering your password you’ll need to go through a second step of verification by providing a one-time-passcode(OTP) generated by your 2FA device.
There are many 2FA devices these includes Google Authenticator, Yubikey and Authy. 2FA can also be activated via your email and through SMS. Here an OTP is sent to either your email or your phone as an SMS.
You can get more information on 2FA here
4. Deposit your Cryptocurrency or Base Cryptocurrency in your Exchange Wallet:
Now that you have successfully completed steps one to three. You need to deposit the cryptocurrency or base currency you bought earlier in your crypto exchange wallet. The normal mode of operation here is you navigate to the balance or funds section in your cryptocurrency exchange account, select the cryptocurrency you want to deposit and click the deposit button. A wallet address will be generated, you simply need to copy the wallet address and send the cryptocurrency or base cryptocurrency to the wallet address you copied.
Please note there are different cryptocurrencies and you can’t send Bitcoin to an Ethereum address. So if you want to deposit Bitcoin you simply need to click on bitcoin then copy the bitcoin address in your cryptocurrency exchange account and send the bitcoin there.
5. Choose a Cryptocurrency you want to Trade:
We are in the final stage inside the dragon, soon the dragon will be spitting fire. But you have to choose which type of fire the dragon will be spitting hahaha. We are talking about the cryptocurrencies you want to trade here.
In a cryptocurrency exchange there different trading pairs and these pairs represent different cryptocurrencies. Examples of trading pairs include:
ETH/BTC – here you are using Bitcoin to buy Ethereum. The base currency here is Bitcoin.
BTC/USDT – here you are using the stablecoin USD Tether to buy BTC.
USDT is the base cryptocurrency here.
You have to choose which cryptocurrency you want to trade. The choice is yours but when choosing make sure you consider a cryptocurrency pair with high trading volume. Two places you look out for cryptocurrencies are coinmarketcap.com & coingecko.com. Here you will get informations about cryptocurrencies like their price, trading volume and trading pairs on exchanges there are listed on.
You can simply click the pair and it takes you directly to the exchange. If it’s an exchange you do not have an account, you’ll need to create an account there. Simply follow steps one to four.
I believe you entered the dragon successfully like Bruce Lee and the dragon should be spitting fire and flying by now. In our next article we will discuss further on how to trade on cryptocurrency exchanges. We will cover terms like volume, market cap, market order, limit order, trading fees, buying & selling on an exchange, etc.
Comment with your questions, suggestions and contributions.