Is it really possible to make money from cryptocurrency trading?  Is it a legitimate long term strategy for wealth creation?  I thought I’d put together a post rounding up the current state of cryptocurrency trading and how you can get started.

Figuring out when to buy and sell

This really is the million dollar question!  And obviously I can’t give you an easy answer.  Trying to predict which direction a cryptocurrency will move is really difficult.  No one can be certain either.  You can however learn some basics of fundamental analysis.  Digital currencies will move based on fundamental factors.  For example, recently a popular digital currency exchange announced they would be supporting Litecoin.  And as a result the price of litecoin jumped.  This was a fundamental force – in this case, a popular exchange would increase the demand of litecoin and therefore more supply would be needed, pushing the price up.

These sort of fundamental forces are what you need to be looking out for, if you want to be a successful cryptocurrency trader.  This means staying plugged into news, understand how the currency actually works, and becoming familiar with charts and how to read them.

Trading Cryptocurrencies at an exchange

Trading cryptocurrencies at an exchange is much like trading forex.  You’re basically looking to profit from the movement of one currency against another.  Most of the time, you’ll be trading bitcoin against the USD or bitcoin against another cryptocurrency.

There are a lot of exchanges online, but there are only a couple I would actually trust.  In the past, exchanges have shut down out of the blue and taken everyone’s currency with them.  The anonymous nature of cryptocurrencies, means this is an added risk.

I currently use Poloniex.  Although I trust them more than most exchanges, I still wouldn’t leave a large amount of currency sitting in my account.  On Poloniex you can trade all the major cryptocurrencies and the markets are fairly deep, meaning your orders won’t sit around unfilled.

If you’re new to trading, then trying to trade on Poloniex or another exchange will be quite daunting.  None of the exchanges have good interfaces.  And unfortunately, unlike forex or stock trading, where you can practice with pretend money, this simply doesn’t exist on these exchanges.  So I would only recommend signing up to somewhere like Poloniex, if you have trading experience.

Trading CFDs on eToro

Holding a lot of any one cryptocurrency can be risky.  But it’s still entirely possible to trade cryptocurrency without actually owning any.    When you trade a CFD, you are speculating on the price of an underlying asset.  CFDs are a very common investing product – people have been able to trade CFDs in stocks, commodities and other traditional assets for a long time.  More recently I’ve been seeing CFDs popup for cryptocurrencies as well.

eToro was one of the first places to offer CFD trading for Bitcoin.  And recently the’ve added other cryptocurrencies too including Ethereum.

One major advantage of CFDs is that you can take either long or short positions.  You would open a long position (buy) if you thought the price would rise.  And you would do the opposite, go short (sell) if you thought the price would drop.  This way you can profit no matter what direction the asset is moving.   Talented traders will be able to profit even if the price of bitcoin or another currency is falling by opening short positions.

With CFDs you won’t pay any large exchange fees.  There is usually a weekend holding fee and you pay a spread.  The spread is simply the price difference between the buy and sell prices.

Trading CFDs on Whaleclub

On eToro, you’re trading using fiat currency, such as USD.  On Whaleclub, you trade exclusively in digital currency.  The only deposit option is via Bitcoin or Dash.

You still trade CFDs, just like on eToro, but the base currency will always be Bitcoin.  This can take a little bit of adjusting to get used to, but essentially trading is much the same.   Because whaleclub deals entirely in digital currencies, you don’t need to go through the same verification processes that you would on more traditional trading platforms.  In fact, whaleclub prides itself on its level of privacy.

Buying and Holding a Cryptocurrency

I don’t know if we’ll see another cryptocurrency launch with the potential to double your money hundreds of times over.  Those days maybe gone.   But if you are bullish on a currency then holding onto it, and hoping the price will rise could still net significant returns.

Some people have crazy predictions for bitcoin, and believe the price will soar over a million dollars.  I, just like everyone else, can’t say if that will happen.  Essentially it is a gamble.    Most people who are making money trading bitcoin are doing it by the volatility that happens everyday, and not just holding onto a coin.    But as I’ve said, I still think there is money to be made in holding.

Holding is probably the easiest strategy for newbies.  Trading is difficult and time consuming.  Where as anyone can easily purchase bitcoin in a few minutes.  But as a newbie, its important to remember that there is huge risk involved.  There is no guarantee the price will rise, so never invest more than you can afford to lose.

Hopefully this will inspire you to look more into cryptocurrencies.  There are many different trading options, and I’ve presented just three – mainly because I’ve used all of them and do trust them.  Let me know in the comments how you are trading cryptocurrency.