Cryptocurrency trading is flooding the popular media, with millions being made and lost. If you’re interested in dipping your toes into the crypto waters, you’ll need to understand how the process works. The best platforms for cryptocurrency trading include user-friendly websites with educational content.
Digital currencies are created by computers using a technology called blockchain. Blockchain is a list of digital transactions that can be viewed and verified. Blockchain enables digital coin transfers without the middle party, like a bank or brokerage firm. But cryptocurrency typically trades through a third party, called a cryptocurrency broker.
Before deciding which of the best crypto platforms is for you, you’ll need an understanding of the various ways to store cryptocurrency. Unlike stocks and exchange-traded funds, the crypto storage experience is unique. Your stock and ETF shares are stored within your account, and can be easily traded from that platform. Digital assets, however, can be stored on the platform or in external wallets. Crypto wallets are actually types of software with complicated passwords or keys, created to protect your digital currency.
Cryptocurrency storage options include:
- Custodial wallet. Another entity stores your cryptocurrency for you, in your own account. The custodian is typically the firm where you purchased the digital asset.
- Cold wallet. An external device that connects to your computer to store your cryptocurrency. This keeps your cryptocurrency offline and away from hackers.
- Hot wallet. A desktop or mobile app that stores cryptocurrency online. These have a recovery key which makes the crypto easier to access if you lose your password, but they are more available to hackers.
Your cryptocurrency storage decision might impact which of the best platforms for cryptocurrency trading is best for you.
After deciding which cryptocurrencies you want to buy and how to store them, you’ll need to consider which crypto broker is right for you. There are millions of available digital assets, but a much shorter list of those have significant trading volume. Most cryptocurrency trading platforms offer a limited number of coins, for example, so you’ll need to make sure that the coins you’re interested in purchasing are available from the specific cryptocurrency broker.
Beginning crypto buyers might consider a crypto broker that offers a custodial wallet, for easier storage. If you already have an account with a broker that also offers crypto trading, it might be easiest to continue investing with that firm. Just note that you might not be able to transfer the coins from the holding firm.
More sophisticated cryptocurrency traders will look for volume, pricing, charting and analytical tools.
The best cryptocurrency broker for you depends on your own preferences. Whichever platform you select, first understand the asset, the digital coin landscape and the cryptocurrency trading process. Be aware of the risks, which include not only volatile prices, but also the security issues surrounding digital assets. Learn how to protect your cryptocurrency. It’s a good rule of thumb to allot no more than 5% to 10% of your investment dollars to risky assets like crypto.
