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Risk Warning: Your Capital is at Risk.
Are you curious trading cryptocurrencies like Bitcoin or Ethereum? If so, it’s a good idea to find as much information on digital currency as you can before choosing an exchange or trading platform.
This guide will explain what drives the price of digital assets and how to get started trading cryptocurrency. We'll also give you our recommendations for where to buy and trade them.
What Is Cryptocurrency?
Cryptocurrencies are digital currencies. They are created using digital cryptography to process transactions and create new “coins.”
Cryptocurrencies like Bitcoin are popular because they are decentralized. In other words, banks and governments don't control access to the currency.
In contrast, fiat currencies are more easily manipulated by governments and banks.
There are thousands of Bitcoin alternatives called altcoins. Cryptocurrencies like Ethereum and Ripple have improved upon Bitcoin's original model or created differences in their currencies to support niche uses.
What Is Blockchain?
If you've heard of cryptocurrency, chances are you've also heard the term “blockchain,” since its technology is what makes cryptocurrencies unique and valuable. We'll use Bitcoin as an example.
In simplest terms, blockchain is a method of storing all Bitcoin transactions in a ledger that's attached to each and every coin.
From a digital perspective, blockchain is literally a chain of programmatic blocks. Each block lists transaction details like dates, times, amounts, and traders involved. All of the blocks together are called a chain, which functions like a publicly-accessible, if encrypted, database.
Blockchain gives structure to the Bitcoin ledger. The ledger is encoded by cryptography so that its contents are insulated from hackers and can be copied to any computer. The use of cryptography also makes it very difficult to forge coins.
Pricing the Cryptocurrency Market
Cryptocurrencies are a high-risk trading instrument since they are much newer than fiat currencies. That makes their value difficult to predict.
Cryptocurrencies may be appropriate for traders who are looking for a high-risk, potentially high-reward trading instrument.
Crypto Market Size
The University of Cambridge conducted two benchmarking studies on cryptocurrency, the most recent in 2019. Here are some of the findings.
|Over 139 million crypto wallets||Only 38% of wallets (about 52.8 million) are considered active.|
|52% of crypto companies work 2+ sectors||The number of cryptocurrency companies operating across two cryptocurrency industry sectors or more, giving rise to an increasing number of universal cryptocurrency companies.|
|84% of providers support more than one coin||Multi-coin support by service providers has doubled since 2017. Over 84% of providers now offer support for more than one type of coin.|
|164% growth in numbers of employees||The number of employees working in the cryptoasset industry grew by 164% from 2017 to 2018, with a median number of 20 employees per firm.|
What Drives the Price of Cryptocurrencies?
Situations that affect cryptocurrencies are typically different from what affects fiat curriencies.
Simultaneous volatility – The cryptocurrency market is characterized by steep rises and sudden dramatic falls. An interesting quirk of cryptocurrency is that multiple coins tend to rise and fall in tandem.
Media attention – As a currency hits the news, it is typical to see an influx of new traders. This tends to precipitate a rise in value. Early traders may then engage in profit-taking. Other traders panic and a rush to sell ensues, leading to a drop in price.
Impending regulation – The prospect of regulation can make cryptocurrency traders bearish.
Coin idiosyncrasies – Individual currencies are influenced by very specific factors. The most common reason a cryptocurrency sees a boost in value is support from the financial sector, but other factors (eg, a security problem) can impact values on a per-coin basis.
Crypto Coins Overview
There are a huge number of cryptocurrencies in existence, making it hard to decide which coins to trade. To guide your choices, we'll take a closer look at some of the most popular cryptocurrencies, but here's a good overview:
|Bitcoin||Decentralized digital currency||2008||21,000,000||ASIC||Proof of Work|
|Bitcoin Cash||Scalable decentralized digital currency (Bitcoin Cash can process a larger number of transactions simultaneously)||2017||21,000,000||ASIC||Proof of Work|
|Dash||Private and instant transfers||2014||18,900,000||ASIC||Hybrid Proof of Work + Proof of Stake|
|Decred||Scalable, decentralized and self-governing altcoin||2015||21,000,000||Gominer GPU||Proof of Work, Proof of Stake|
|Dogecoin||Started as a joke but became a friendly, approachable altcoin||2013||None||GPU||Proof of Work|
|Ethereum||Designed to allow users to program specialized “smart contracts” that allow for more flexibility than coins like Bitcoin||2015||~100 million soft cap||GPU||Proof of Work currently with a plan to switch to the Casper Poof of Stake protocol|
|IOTA||Scalable, free microtransactions between Internet of Things device||2015||2,779,530,283||Tangle||Proof of Work|
|Litecoin||Created as an "Upgrade" to Bitcoin||2011||84,000,000||GPU||Proof of Work|
|Monero||Privacy through untraceable transactions and stealth addresses||2014||18,300,000||ASIC||Proof of Work|
|Neo||Chinese smart contract system||2016||100,000,000,000||N/A||Proof of Service|
|Ripple||Centralized enterprise blockchain solution for banks, payment providers and digital asset exchanges||2012||100,000,000,000||Not Mined||N/A|
|Verge||TOR level privacy and security that's practical for everyday use||2014||16,555,000,000|
|Zcash||Science-based approach to decentralization and privacy||2016||21,000,000||GPU||Proof of Work|
Bitcoin (BTC) is the cryptocurrency that started it all and it remains the gold standard for a cryptocurrency.
It can now be used to buy goods and services electronically — and can also be used as a way to pay for goods in foreign currency while avoiding transaction fees.
Bitcoin is by far the most popular cryptocurrency and many crypto traders choose to start trading crypto with it.
A disagreement within Bitcoin's user base about how to resolve the problem of long transaction times led to a hard fork.
The solution was to dramatically increase the block size while removing Bitcoin's Segregated Witness (SegWit). The disgruntled users decided to part way with Bitcoin and thus Bitcoin Cash (BCH) was born.
Dash (DASH) was created to fix perceived flaws in the Bitcoin concept – specifically anonymity protection and transaction speed.
Originally called xcoin, then darkcoin, Dash can confirm a transaction in seconds and has workarounds to prevent double-spending.
Dash also mixes the transactions of multiple users using coinjoin which helps to anonymize them.
Decred (DCR) is another altcoin that tried to fix what was wrong with Bitcoin — in this case, scalability.
Along the way, Decred democratized itself by giving its stakeholders a voice in changes to the blockchain. In doing so, they hoped to avoid bad blood caused by controversial forks to other coins.
If you recognize the meme that Dogecoin (DOGE) is based on, you'll probably smile. This altcoin started as a joke, but it took on a legitimate life of its own, thanks to its friendly community of users.
Dogecoin is used to tip Twitter and Reddit users, which is a fitting tribute to its fun beginnings.
Ethereum (ETH) is a serious contender to Bitcoin's dominance of the market. This altcoin is technically a programming language running through a blockchain.
Ethereum acts like a decentralized computer, designed to run without any downtime, fraud, or interference from third parties.
It is also bought and sold as a conventional digital currency. The potential applications of Ethereum are incredibly promising.
IOTA (MIOTA) was developed as a way to facilitate free microtransactions between devices connected to the Internet of Things (IoT).
It is a unique cryptocurrency that instead of using a blockchain ledger, uses a directed acyclic graph (DAG) called Tangle. Tangle could very well be the future of cryptocurrency.
It was designed to be easier to obtain than Bitcoin and generate four times as many coins through faster block generation.
Litecoin's founders also wanted to prevent wealthy miners from having undue influence on the future of the currency.
Monero (XMR) is designed to provide its users with as much anonymity as possible.
Like Bitcoin, Monero was created to buy goods and services. Unlike Bitcoin, Monero is designed to do it completely anonymously.
In the Bitcoin blockchain, it is possible to see every transaction on the blockchain, but Monero only stores a temporary address, making the source of the transaction untraceable.
NEO improves upon the Ethereum network in just about every way, including plugging gaps that made Ethereum vulnerable to hackers.
NEO's blockchain also includes a digital identity along with transactions. Users can choose to trade only with confirmed identities, protecting them from scams.
Ripple (XRP) was designed as a bridge between cryptocurrencies and fiat currencies, earning it the support of major banks.
Ripple’s goal is to enable secure, instant, and low-cost global financial transactions. It's even used by many banks within their settlement infrastructure.
Ripple has the potential to be the most disruptive cryptocurrency available today.
Verge's blockchain features both TOR and I2P integration which anonymize users. It offers e-wallets that are usable on every platform, most notably Linux.
Verge has popped up on the trader radar as a key privacy coin.
Zcash (ZEC) is another coin that prioritizes privacy and decentralization.
A team of computer scientists and cryptographers made cryptography breakthroughs that allow Zcash users to make untraceable transactions.
Like Bitcoin, Zcash has a fixed supply of coins.
Where Can I Trade Crypto?
Before you start trading cryptocurrency, you should find out if it's legal in your area to do so.
Crypto Regulatory Bodies
Various regulatory bodies around the world make laws that apply to cryptocurrency trading. Here are the largest regulators.
|Australia||Australian Securities and Investments Commission (ASIC)|
|Canada||Canadian Securities Administrator (CSA)|
|European Union||Cyprus Securities and Exchange Commission (CySEC),|
Markets in Financial Instruments Directive (MiFID),
European Securities and Markets Authority (ESMA)
|Germany||Federal Financial Supervisory Authority (BaFiN)|
|Japan||Financial Services Agency (FSA)|
|New Zealand||Financial Markets Authority (FMA)|
|Switzerland||Financial Markets Supervisory Authority (FINMA)|
|United Kingdom||Financial Conduct Authority (FCA)|
|United States||Financial Crimes Enforcement Network (FinCEN),|
Security and Exchange Commission (SEC)
Crypto Trading by Country
Many countries allow some form of cryptocurrency purchasing or trading.
- Antigua and Barbuda
- Bosnia and Herzegovina
- Burkina Faso
- Côte d'Ivoire
- Cabo Verde
- Central African Republic
- Congo (Congo-Brazzaville)
- Costa Rica
- Czechia (Czech Republic)
- Democratic Republic of the Congo
- El Salvador
- Equatorial Guinea
- Eswatini (fmr. “Swaziland”)
- Holy See
- Marshall Islands
- Myanmar (formerly Burma)
- New Zealand
- North Korea
- North Macedonia
- Palestine State
- Papua New Guinea
- Saint Kitts and Nevis
- Saint Lucia
- Saint Vincent and the Grenadines
- San Marino
- Sao Tome and Principe
- Sierra Leone
- Solomon Islands
- South Africa
- South Korea
- South Sudan
- Sri Lanka
- Trinidad and Tobago
- United Kingdom
- United States of America*
*Only some US states allow cryptocurrency trading — see our list of states below.
Crypto Trading in US States, Districts, and Territories
In the US, cryptocurrency trading legality varies by state. Here's a map showing where eToro allows crypto trading.
- District of Columbia
- New Jersey
- New Mexico
- North Dakota
- Northern Mariana Islands
- Rhode Island
- South Carolina
- South Dakota
- United States Minor Outlying Islands
- West Virginia
One way to purchase crypto is by using a cryptocurrency exchange. With an exchange, you can:
- Use fiat money to buy tokens (ie, coins)
- Store cryptocurrency in a digital wallet
- Trade tokens for different cryptocurrencies that are available on the exchange.
Using an exchange can be a risky prospect. Ensure that you research the following criteria before choosing a cryptocurrency exchange.
Fees Associated With Trading
A crypto exchange generates funds primarily through fees. Most traders will want to choose exchanges with low fees. However, some exchanges do offer more features in exchange for higher fees.
Here are the most common types of fees:
- Trade fees: Usually take the form of a maker or taker fee. Traders are charged a fee to place a trade on the market or to take someone up on a trade. Trade fees can be up to 1% of the transaction, depending on currency pairs or payment method.
- Deposit and withdrawal fees: It's typically cheaper to deposit money with an exchange than to withdraw from it. Some exchanges allow you to deposit via a credit card but this typically incurs fees between 3-4%.
- Exchange fees: These fees are exacted when converting tokens between currencies. The amount of the fee varies depending on the currencies involved.
Most traders will want to use an exchange that has ID vetting. Identity verification can help prevent illegal or fraudulent activity.
If you are concerned about your identity being linked to your Bitcoin for philosophical reasons, there are some options. However, the whole market is changing. In mid-2019, LocalBitcoins stopped allowing this.
Currency Pairs Offered
Not all exchanges offer the same currency pairs. Some focus exclusively on a single currency, usually Bitcoin. Other exchanges provide trading across hundreds of altcoins.
Two of the best exchanges when it comes to the variety of currency pairs are Kraken (over 30 unique cryptocurrencies with 85+ fiat/crypto and 65+ crypto/crypto pairs) and Coinbase (over 20 unique cryptocurrencies).
Make sure you research potential exchanges for factors that make the platform safer to use. Factors to consider include:
- The age, history, and stability of the exchange
- Individual trader ratings
- Reviews and comments from the exchange's users.
Top Cryptocurrency Exchanges
Here are some popular cryptocurrency exchanges:
|Binance||Exchange hundreds of coins, buy futures and leveraged tokens, crypto loans|
|Bitfinex||Crypto exchange, margin trading, crypto derivatives 👜 🔹|
|Bitmex||Crypto exchange, futures, perpetuals, 100x leverage on some derivatives 🔹|
|Coinbase||Crypto exchange, get paid to learn about crypto, offers USD Coin 👜|
|Huobi||Crypto exchange, 5x leverage for spot trading, futures, swap, C2C lending 👜|
|Kraken||Crypto exchange for traders at all levels, many crypto derivatives 🔹|
|OKEx||Crypto exchange, spot, futures, perpetual swap, and derivatives trading, cold and hot wallets 👜|
|Stormgain||Crypto exchange, low fees and 200x multiplier on crypto futures 👜 🔹|
|👜 = Built-in cryptocurrency wallet
🔹 = Demo available
Cryptocurrency Trading Platforms
Another way you can trade crypto is with a regulated CFD or forex broker.
Choosing a Crypto Trading Broker
Picking a CFD broker can be difficult, but you should first ensure that the broker is regulated because:
- They must comply with high security and ethical standards to ensure that deposited money is safe.
- They must comply with laws designed to protect traders.
Let's discuss some of the factors you should consider before choosing a crypto broker.
Commissions and Spreads
The cryptocurrency market is highly competitive which means that very few regulated brokers charge commission fees.
Instead, they make money by charging on the spread. A spread is a percentage per “unit” (or token/coin) which can add up quickly with the low-value, high-density currencies.
Most regulated brokers, such as Markets.com, are transparent about costs. They include a minimum spread per unit in US dollars (USD) which makes it easy to figure out exactly what you are being charged.
Make sure you also check to see whether a broker charges fees or commissions for holding a position overnight. Be aware that many brokers charge a premium for this service. Overnight fees can add up quickly.
Brokers often provide extra features to help you manage your trading risk, which can be worth paying a bit more in spreads.
Experienced traders may find the diversity of instruments and pattern-recognition tools offered by CMC Markets to be more helpful.
Try the Demo Account
Most crypto trading brokers offer a free demo account. Demo accounts allow you to test a broker's trading interface, tools, and resources, by making trades with play money.
Features to consider in a demo account:
- Expiry – With some brokers, your demo account never expires — eg, eToro.
- Switching – Many brokers make it easy to switch back and forth between the demo account and your “real money” account — eg, Fortrade.
How to Start Trading Cryptocurrency
Here we'll show you step-by-step how to set up a demo account with broker eToro so you can practice crypto trading. eToro's demo account doesn't expire.
The eToro website will detect your country of residence and direct you to the appropriate products on its website.
eToro USA LLC; Virtual currencies are highly volatile. Your capital is at risk.
- When you arrive at eToro, it will detect the country you're located in by your IP address. (Your start screen may look different than the one above.) Click Trade It All.
- You can create an account with Facebook, Google, or your own email address.
- You'll need to provide an email address, a username and a password.
- Agree to the requested conditions and click Create Account to proceed.
- Check your email for a verification message and click the enclosed verification link.
- eToro will now ask you to Sign in again.
- Click Continue (it may load automatically) on the Welcome Aboard pop-up to begin filling out your profile.
- Provide your full name, gender, and birthday.
- You'll also need to provide your address and social security number (or your country's equivalent). Then, confirm that your country of residence is the same as your birthplace and country of citizenship.
- Complete your trading profile: Explain what you want to do with any money you earn, your trading timeframe, risk tolerance, conflicts of interest, and financial status (including income and occupation).
- Now you'll need to verify your phone number. eToro will send you an SMS text with a verification code you'll enter on the website.
- Agree to the required tax forms for your country.
Now you're ready to begin trading with the $100,000 of “play money” in your demo account! In the left-hand navigation bar, click Trade Markets to see the markets and crypto coins that are available for purchase or to trade.
Now you know the basics about cryptocurrencies and how to buy or trade them. Plus, you'll have a demo account at eToro to try your hand at trading with play money.
If you want to learn more about brokers, see our Brokers Guide. You can also jump directly to our eToro or Plus500 reviews. Or you can start learning more about Bitcoin or various altcoins like Ethereum and Ripple next.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 73.0%-89.0% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFD assets.
Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
Cryptoassets are volatile instruments which can fluctuate widely in a very short time frame and, therefore, are not appropriate for all traders. Other than via CFDs, trading cryptoassets is unregulated and, therefore, is not supervised by any EU regulatory framework.
How much does it cost to trade cryptocurrency?
Costs to trade crypto vary widely. You can purchase cryptocurrency on an exchange that may charge trading (buy/sell) fees, deposit/withdrawal fees, and currency exchange fees. If you choose to trade with a regulated broker instead, you'll need to look for commissions (uncommon) or spreads (typical).
Is crypto trading still profitable?
It's impossible to say what the future holds for cryptocurrencies. And even if its long-term trend is upward, it's still possible to lose large amounts of money via short-term fluctuations in the volatile market. So although it's possible to make money by trading cryptocurrency or its derivatives, it's not easy or safe for the casual trader. We recommend crypto trading only for experienced traders.
Can you day trade crypto on Robinhood?
Robinhood, an online brokerage, offers commission-free cryptocurrency trading in some countries. They have day trading rules that are designed to protect traders from taking on too much risk. As such, traders can't make more than three-day trades in a five-day period. However, some high-deposit accounts are exempted from this rule.
Has COVID-19 impacted coins the same as fiat currencies?
Initially, COVID-19's global lockdowns caused Bitcoin's value against the US dollar to plummet. However, in the second quarter of 2020, BTC started to bounce back to nearly its pre-pandemic price while the US dollar index (DXY) has been much more volatile. That said, the uncertainty inspired by the pandemic will likely make it impossible to predict how either of these currency types will fare in the near future.
You Might Also Be Interested in…
- [University of Cambridge] 2nd Global Crytpoasset Benchmarking Study (2019)
- [US Library of Congress] Regulation of Cryptocurrency Around the World
- [US Federal Trade Commission (FTC)] What to Know About Cryptocurrency