How to trade cryptocurrency (in 6 easy steps)

1. Gain a basic understanding of how cryptocurrency works

If you’ve already moved to the point of wanting to learn how to trade cryptocurrency, it’s likely that you already understand the basics. But if you don’t, we highly recommend that you do further research on Moneywise and other reputable sites (such as cryptocurrency exchanges before beginning to trade coins. In the meantime, here's a quick overview.

Cryptocurrencies are digital currencies that are built on decentralized networks of peer-to-peer computers. Bitcoin was the first, and is still by far the most popular, cryptocurrency. However, there are hundreds of “altcoins” (any coin other than Bitcoin). And, as of writing, over 90 coins have market caps in excess of $1 billion according to CoinMarketCap.

Unlike currencies that are issued and controlled by governments, cryptocurrencies don’t require middle-men (such as banks or payment processors). This means your coins can be transferred directly to another party quickly and securely.

A cryptocurrency’s blockchain is its record of transactions, akin to a financial institution’s ledger. Again, this ledger is split amongst many computers, so there’s no central server to hack. This makes blockchains incredibly difficult (many would say nearly impossible) to hack.

To receive cryptocurrency, you need both a public and private key. The public key is the address where the sender will direct the funds. However, you won’t be able to authenticate that you own them without your private key.

Importantly, this means that if someone gets access to your private keys, they could withdraw or transfer all of your cryptocurrency assets. This makes their security paramount.

Private keys can be stored in either hot (connected to the internet) or cold (not connected to the internet) wallets. Cold wallets are more secure, but they can be more cumbersome for traders as keys must be transferred to an exchange before they can be sold or traded.

More: The best cryptocurrency wallets

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2. Decide if you want to be a crypto trader or investor

There are two major camps within the cryptocurrency world. Some are all in on trying to buy and sell assets for quick gains. Others are resolved to hold on to their coins over the long haul no matter how far the market moves up or down in the short-term.

“…When markets dip and traders say “Sell!” crypto investors say “HODL!”

Those who belong to the second category often refer to themselves as HODLers. The term HODL originates back to 2013 when someone accidentally spelled HODL instead of “hold.” Since then, many have used HODL as an acronym for “hold on for dear life.” So when markets dip and traders say “Sell!” crypto investors say “HODL!”

While stocks are often used for both investing and trading, cryptocurrency tends to lend itself better to the latter. As a whole, the crypto market is far more volatile than the stock market. That’s generally considered a negative for investors, but can actually be a positive for traders. There are also no pattern day trading regulations for cryptocurrencies like there are for stocks.

There are advantages to taking a buy-and-hold approach to cryptocurrency investing, however. First, it helps you avoid panic selling during periods of high volatility (which, again, is just about every day in the crypto world). Plus, HODLers may be able to take advantage of loaning out their crypto to earn interest. Many platforms now offer crypto interest accounts that pay far more than the typical high-yield savings account.

If you decide that trading is right for you, any cryptocurrency with high liquidity becomes fair game. However, if you’re looking to actually invest in crypto, you may want to stick with more established coins that already have practical use cases like Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), and Litecoin (LTC). If you think crypto investing is more your style, check out this guide for more tips and best practices.

3. Focus on cryptocurrencies that have high liquidity

If you’re specifically looking to trade cryptocurrency rather than invest, you’ll want to zero in the coins that are traded most often. While billions of dollars of Bitcoin may change hands in a 24-hour period, other less popular altcoins may have a daily volume of less than $1 million.

Trading illiquid coins can lead to two major problems:

1. You may not be able to immediately close a position when you want to. This could cause you to miss out on locking in profits or, worse, suffer steeper losses.
2. Trying to trade illiquid coins can also lead to “slippage,” which results in you receiving a lower price for your assets than expected.

CoinMarketCap is a great place to start if you’re wanting to find coins that offer high liquidity. It allows traders to compare currencies by market capitalization, 24-hour trading volume, circulating supply, and more

It should also be noted that even if you’re trading a liquid coin, you might struggle with fast trade execution if you’re trying to buy or sell it on a low-volume exchange. Again, CoinMarketCap can be helpful in this regard as it makes it easy to rank each exchange by 24-hour trading volume, average liquidity, weekly visits, and more.

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4. Choose a cryptocurrency exchange

Exchanges are to cryptocurrency trading what brokerages are to stock trading. And just like with brokers, exchanges can vary widely in their features and costs.

At the end of this article, we list five of our favorite cryptocurrency exchanges for trading. But for now, here are a few factors that you’ll want to consider as you compare platforms.

Fees

Long-term investors may not be as worried about the fees that they pay for trades. But if you’ll be trading frequently, trade costs become a bigger deal that can make a big difference in how much you make (or lose).

To find the lowest fees, you’ll generally want to look for exchanges that utilize a maker/taker pricing structure. With Coinbase, this means you’ll want to sign up for a Coinbase Pro account which targets active traders as its standard accounts come with a more complicated and higher cost fee structure.

“Maker” orders are trades that don’t receive an immediate match, which means that they are providing liquidity to the market. “Taker” orders, meanwhile, are those that are matched immediately and thus take away liquidity. Typically, exchanges charge lower fees for maker orders.

In most cases, maker and taker fees will both be less than 0.60%. This is much less than platforms like Coinbase or Gemini charge on their standard accounts. Also, most exchanges will reduce your maker/taker fees as your 30-day trading volume increases.

Security

It’s not uncommon for crypto HODLers to store their private keys on their own hardware or software wallets. But if you’re looking to actively trade cryptocurrency, you’ll probably need to keep your keys stored on your exchange’s servers.

This makes it essential to choose an exchange that takes security seriously. At the least, you’ll want to make sure that the exchange you choose keeps the majority of its clients’ assets in cold storage. But even better if you can find a platform that also provides cryptocurrency insurance.

Tools & resources

Crypto trading is a completely different animal than investing. With investing, you’ll want to buy coins that you believe will gradually rise over the long haul. But the difference between success or failure with trading often depends on other factors, like your ability to examine charts or utilize advanced order types.

For these reasons, high-volume crypto traders will want to look for an exchange that offers a professional-level trading experience. Some of the popular trading platforms provide real-time order books and make it easy to execute trades with minimal clicks. And if you’re hoping to trade on the go, you’ll want to make sure that the mobile UI isn’t markedly inferior to the desktop experience.

Supported currencies

Are you only looking to trade Bitcoin? If so, you’re in luck! You’ll be hard-pressed to find an exchange that doesn’t support it.

But once you move beyond BTC, you’ll begin to notice wide disparities in the number of currencies that are supported on the various exchanges. If you’re just looking for the exchanges that offer the most coins, you can easily compare options here.

However, if there’s a specific coin that you know you want to trade, you should probably visit the actual website for each exchange to make sure that it’s available in your country. For example, Binance offers hundreds of coins globally but just under 80 in the United States.

More: Binance vs. coinbase: which exchange is better for traders?

Coin portability

Most cryptocurrency platforms allow users to withdraw or transfer their assets to an off-exchange wallet at any time. Some exchanges, however, don’t allow cryptocurrency to be transferred in or out.

With the exchanges that belong to the latter category, your crypto assets can’t be withdrawn until they’ve been converted into a fiat currency such as USD. This might not be a problem if you’re a trader who doesn’t plan to hold onto coins for a long period of time anyway.

However, some traders may plan to do a bit of investing as well. If that sounds like you, it may be prudent to pick a platform that won’t require you to liquidate your positions before you can move your crypto to a different wallet or exchange.

5. Learn how to leverage technical analysis

When it comes to stocks, investors often care more about fundamental analysis while traders tend to rely more heavily on technical analysis.

The same is true for cryptocurrency. To improve your chances of success with crypto trading, you’ll want to at least learn how to read candlestick charts and identify basic technical indicators like support and resistance levels.

But technical analysis can go much, much deeper. Other popular tools of the trade (pun intended) include moving averages, average directional indexes, Bollinger bands, the Relative Strength Index (RSI), and much more.

Thankfully, many of the same technical strategies that are useful to stock traders can be applied to crypto trading as well. For an introduction to technical analysis and chart-reading, check out our guide.

6. Take proactive steps to mitigate risk

Trading, even for traditional assets like stocks, is inherently riskier than investing. But trading crypto can be even more risky due to the higher (on average) volatility.

But just as with day trading or swing trading stocks, there are ways to reduce your risk if you decide to trade crypto. These include taking small position sizes, limiting the amount of margin that you use or avoiding margin trades altogether, and setting stop loss limits.

You’ll also want to be realistic about your profit expectations. For example, it might be reasonable to set a goal to earn 5% on a profitable trade before you’ll exit your position. But with a 30% targeted return per trade, you’re more likely to miss out on opportunities to lock in profits.

Best exchanges for trading cryptocurrency

Here are five of the best exchanges available today if you’re looking to actively trade cryptocurrency.

Coinbase pro: ease of use

Coinbase is by far the most popular U.S.-based cryptocurrency exchange and for good reason. It's built a strong reputation for security and it's user interface is incredibly easy to use on both desktop and mobile, even for complete beginners.

But while Coinbase often wins the “best for newbies” awards on lists of exchanges, Coinbase Pro actually competes well on both pricing and features for experienced traders. Currently, it’s maker/taker fees start at 0.60% and go down from there. It also offers real-time data and a popular API for creating trading bots.

At 150+ supported coins, Coinbase doesn’t offer as many currencies as a few of the most popular global exchanges. But, for a U.S. exchange, that’s still an impressive number of coins that includes virtually all of the ones that are most commonly-traded. And Coinbase has consistently added to its list over time.

More: Check out our head-to-head comparison of coinbase vs coinbase pro

Gemini ActiveTrader™: tools and charts

If you’re looking for a professional-level trading platform, it’s hard to beat Gemini ActiveTrader™. In addition to trades executing in microseconds, its order books offer deep visibility. ActiveTrader™ also offers multiple order types including block trading and it hosts daily auctions for certain trading pairs.

However, what really sets Gemini ActiveTrader™ apart from the crowd is its deep integration with TradingView. TradingView’s advanced charting and screening tools have been respected by traders for years. And Gemini clients can execute crypto trades directly from the TradingView interface.

Trading fees for ActiveTrader™ start at 0.20% for maker orders and auctions and 0.40% for taker orders. It should be noted that there isn’t currently a Gemini ActiveTrader™ mobile app. However, the web platform is optimized for mobile browsers.

More: Read our full review of Gemini

Crypto.com: high security

Crypto.com goes to great lengths to protect the assets of its clients. It’s one of the only exchanges that keeps 100% of its users' private keys in cold storage. But it doesn’t stop there. It also provides up to $750 million of insurance on its cold storage servers.

Fiat currencies that are on deposit with Crypto.com are protected by FDIC insurance up to $250,000. Account logins are protected by multi-factor authentication (password, biometric, email, phone, and authenticator verification). Whitelisting for external addresses is required. And Crypto.com even runs a bug bounty program!

In addition to all these safety features, Crypto.com also charges reasonable fees. Its volume-based maker and taker fees start at 0.40%. You can also earn discounts on trade fees if you stake and pay for your fees in CRO (Crypto.com’s native token).

Robinhood: all-in-one crypto and stock trading

Robinhood is worth considering for those who want to trade stocks, ETFs, options, and crypto in one single account. It also has an easy-to-use platform that beginners may find less intimidating than other platforms.

Robinhood doesn't charge any direct commissions on crypto trades, but you’ll still be incurring indirect fees through the spread. Unfortunately, Robinhood doesn’t provide an estimate of what users can expect to pay on average in spread fees.

There are two major downsides to using Robinhood that are worth mentioning. First, it supports very few cryptocurrencies (currently just seven). Second, users aren’t able to transfer cryptocurrency into or out of their accounts. So to get crypto on or off the Robinhood platform, you’ll have to convert it to a fiat currency first.

More: See our full Robinhood review

Binance: low fees

Binance is the most popular crypto exchange in the world by market volume. And while Binance.US isn't as fully-featured as the international platform (Binance.com), its rock-bottom fees still make it one of the best exchanges for U.S. crypto traders.

Currently, spot trades cost just 0.1%. That's six times less than Coinbase Pro's taker fee for users with less than $10k of monthly trading volume. Note that there's a higher fee of 0.50% for buying and selling crypto. But if you're just looking to trade assets with other users, you'll have a hard time finding a more affordable exchange.

Binance.com users can trade over 500 currencies, while the supported asset list for Binance.US is more modest at 80+ coins. Advanced trading features on Binance.US include limit orders, stop limit orders, and a variety of charting tools such as trend lines and Fibonacci Retracement levels.

Cryptocurrency trading FAQs

Is crypto trading profitable?

Crypto trading can be very profitable due to the high volatility that many cryptocurrencies are known for. However, this volatility can also quickly lead to large losses if a trade goes against you. Trading is inherently a risky way to make money with cryptocurrency.

Do you need $25k to day trade crypto?

No, unlike stocks, you can make an unlimited number of crypto trades per day regardless of your account balance.

Which exchange will allow you to trade Dogecoin?

There are several major crypto exchanges that support Dogecoin (DOGE) trading, including Coinbase, Gemini, Crypto.com, Robinhood, and more.

Is cryptocurrency legal?

Decentralized digital currencies such as Bitcoin are legal in the United States. But other countries, such as China, have placed heavy restrictions on cryptocurrency activity.

The bottom line

With fewer rules and restrictions than exist with stock trading, it’s easy for anyone to get started with trading cryptocurrency. However, just like with stocks, short-term trading of cryptocurrencies can be risky and can lead to big losses in a short period of time.

Make sure you fully understand the risks of trading (and how to reduce them) before you begin. And carefully compare exchanges so that you can find the platform that provides the best combination of features and low fees.