How to Trade Cryptocurrency: A Practical Guide for Beginners

Written by Coursera Staff • Updated on

Learn what cryptocurrency trading is, how to make your first trade, and what skills can help set you up for success in this industry.

[Featured Image] A woman on her phone is trading cryptocurrency at her house.

Many novice and experienced traders alike are drawn to cryptocurrency for its volatility and high reward potential. As cryptocurrency becomes more widespread, new careers and exciting opportunities to become involved in this industry emerge daily. However, the crypto world is constantly changing, and the seemingly never-ending influx of new coins and jargon may feel overwhelming when getting started.

Like many things, trading cryptocurrency gets easier the more you do it. Once you spend time exploring and learning the ins and outs of the industry, you may be ready to build your crypto portfolio and find the right investments for you. Over time, you can expand your knowledge and skill set in crypto trading to enter a career in this industry. Taking courses, completing certifications, and building a proven track record of successful investments can help you land a role in helping others invest in and trade cryptocurrency.

Read more: Cryptocurrency Explained: Definitions, Skills, and Opportunities

What is cryptocurrency?

Cryptocurrency is a virtual currency designed to be secure and uninfluenced by governing bodies or third parties. This allows cryptocurrency to have a standard value regardless of the location. Many types of cryptocurrency coins are on the market, each designed to have its own benefits. There’s a good chance you’ve heard of Bitcoin and Ethereum, two of the most popular coins on the market.

To keep transactions transparent and anonymous, cryptocurrency works on a type of technology known as a blockchain. A blockchain is a virtual record of all transactions in the crypto space. Transactions are recorded as “blocks” that attach to previous blocks. This forms a permanent record synced to all computers using the system. Blockchain technology is often used by businesses to set up automatic contracts, known as Smart Contracts, that activate once the set terms are completed. 

What is crypto trading?

Crypto trading involves buying cryptocurrency at a certain value and then trying to make money by selling it when its value rises. Many crypto traders research market trends and price patterns to predict the best times to buy and sell.

Read more: How to Buy Cryptocurrency

Cryptocurrency trading vs. cryptocurrency investing: What's the difference?

Cryptocurrency trading and cryptocurrency investing are similar in that participants buy cryptocurrency at a (perceived) low price and then try to sell it later at a higher value. However, the main difference between traders and investors is the length of time that the asset is held. Cryptocurrency investors hold their assets for an extended period of time (sometimes decades) and are focused on long-term trends. Cryptocurrency traders hold their coins for much shorter periods (usually days to months) and are concerned with short-term trends. 

How to trade cryptocurrency

No matter which type of cryptocurrency you pick to invest in, trading cryptos can be risky. To protect yourself and your assets, there are steps you can take to ensure you are setting yourself up to trade cryptocurrency safely and securely.

1. Choose a reputable cryptocurrency exchange.

Using a reputable cryptocurrency exchange can help you avoid costly mistakes when it comes to trading. Cryptocurrency exchanges are regulated by the government and offer a level of protection for your cryptocurrency. Coinbase, Gemini, eToro, and Kraken are four of the most widely used exchanges on the market, but be sure to research and choose the right one. Some factors include the trading volume, track record over the last five to 10 years, and how your assets are stored and protected within the platform.

2. Create an account and verify your identity.

Next, you will set up a secure account to trade from. For this, you will undergo an identity verification process that includes your Social Security Number (for US citizens), an email address, and additional personal information. This ensures that your assets are connected to you once you purchase cryptocurrency and reduces the likelihood of fraud.

3. Deposit fiat currency into your account.

Once your identity has been verified, you will want to connect your bank account to deposit some fiat currency. Fiat currency is government-issued money that is not backed by another type of asset, such as US dollars. With this money, you can then purchase your first cryptocurrency within the exchange platform.

4. Buy, sell, and swap cryptocurrencies.

After depositing money from your bank into your cryptocurrency exchange platform account, you can choose a cryptocurrency coin you want to purchase. Often, the coins will be attached to their ticker symbol. Researching the name of the coins you are interested in and their ticker symbols can help avoid confusion. For example, Bitcoin’s ticker symbol is “BTC,” and Ethereum’s is “ETH.”  You type in the amount of that coin you would like to buy. Depending on the coin, a singular token could cost a few cents to thousands of dollars. 

For new investors, starting with a fraction of a larger coin can help ease your way in. When you are ready to sell a coin, you can select the coin in your cryptocurrency exchange wallet and type an amount to sell. You can exchange this amount for an equivalent amount of another cryptocurrency coin or return the value into fiat money. Many traders buy and sell coins frequently as the prices shift.

Read more: Popular Cryptocurrencies (+Investing, Careers, and More)

5. Monitor your account and trade history.

As cryptocurrency prices for different assets go up and down, monitoring your account and the value changes of your coins can help you spot any trends and recognize patterns as they emerge. The market tends to go in cycles of accumulation, markup, distribution, and decline. Experienced traders often have different processes for each market phase, and over time, you will likely learn what works best for you. This can help you identify when it may be a good time to buy, sell, or trade based on previous experiences. It can also help you identify when to pull money from your cryptocurrency portfolio, either to secure gains or reduce losses. 

6. Withdraw your cryptocurrency into a wallet.

When you decide to exchange your cryptocurrency for fiat money, you will follow the protocol of your exchange platform to release the value to your bank account or another wallet. This is often done through the “transfer” and “withdraw” sections of the cryptocurrency exchange interface. 

Types of cryptocurrency trading

When you trade cryptocurrency, one of your main decisions is how long to hold onto the asset. Different traders prefer different lengths based on their short- and long-term goals. Generally, traders hold coins for lengths of time, ranging from hours to months. 

After deciding on short or long-term trading, finding your style of trading within these types can help you develop your goals and a trading strategy. If you pursue a career in this area, understanding the goals of others can help you make recommendations for whether day trading, swing trading, or position trading will be the best fit. To decide whether short or long-term trading is the right choice, consider the following.

Long-term trading

Long-term trading, also known as “trend trading” or “position trading,” is when cryptocurrency traders hold onto their assets for long periods – often months or years. This type of trading is similar to investing, except with a shorter time frame. For example, a long-term trader might hold onto a coin for one to two years before selling, while an investor might hold onto a coin for 10 to 20 years. Even with a shorter duration than traditional investments, this type of trading can be beneficial in the long run, as stocks and other investments tend to increase in value over time. Position trading tends to be easier to learn and more forgiving than swing and day trading, which makes it a recommended type of trading for beginners.

However, while this can be the least stressful of all trading styles, assets are also more susceptible to drastic market changes. The long-term market for cryptocurrency is largely unknown, so even long-term trading is riskier for cryptocurrency purchases than many other types of investments.

Short-term trading

Many traders gravitate toward short-term trading for the ability to reap profits quickly. Short-term traders often hold their assets for under a month (sometimes less than a day!) and are quick to buy and sell based on changes in market value. However, this type of trading requires more time, research, preparation, and effort. It also can be stressful, especially if the market takes unexpected swings. Generally, short-term trading falls into one of two categories.

Day trading

Day trading is a type of short-term trading in which traders buy and sell their assets within the same 24-hour period. This form of trading can quickly generate profits and is less risky when it comes to huge unexpected market shifts (but it is also less likely to benefit from large market upswings). However, this type of trading requires high levels of attention and energy, and some traders find it difficult to balance day trading with other aspects of life. 

Swing trading

Swing traders follow longer trends than day traders but generally limit the possession of their assets to under one month. This type of trading can be less stressful and less time-consuming than day trading and can also benefit more from market increases over time. However, this type of trading often requires a strict strategy, so traders must research market trends. 

What are the benefits of cryptocurrency trading?

Several benefits of cryptocurrency trading leave people returning for more, such as the chance of exponential investment returns. Additional benefits include the following:

  • Cryptocurrency exchange platforms make buying and selling cryptocurrency easy, and many platforms have very low fees. This can make it an attractive option for those avoiding heftier fees associated with other types of investments.

  • Cryptocurrency purchases are also secured via cryptography, which creates inalterable activity records. Many businesses have begun using cryptocurrency in business transactions because of the lower fees and potential for more streamlined contracts. Because of this, knowledge of cryptocurrency trading may have the potential to open new career opportunities in businesses looking to expand their use of crypto trading.

  • In cryptocurrency trading, there is the potential for outsized returns. Many types of cryptocurrency coins have shown exponential growth much higher than the average growth for the S&P 500 index of stocks.

  • Several cryptocurrency coins also have a limited supply, which is considered a protective factor against future inflation. However, just because there have been exponential returns in the past does not mean that profits will be as high in the future.

Crypto trading versus stock trading

Both crypto and stock trading have the potential to make traders money. However, the two types of trading are not synonymous and have a few key differences to consider. 

  • Stocks are a share of ownership in a specific company; investors essentially buy a share in that specific business or organization.

  • Traders typically are aware of potential price fluctuations in stocks, while cryptocurrency can often change dramatically with little notice.

  • Cryptocurrency is not universally regulated, and the future of the crypto market is uncertain, which makes its value notoriously volatile.

  • Cryptocurrency is available to traders around the clock, while stock trading can only happen during limited hours. 

Many investors choose the S&P 500 stock index when investing in stocks. This index includes the 500 biggest companies in the United States and allows investors to diversify their portfolio. Investing in the S&P 500 is unlikely to provide the type of returns that crypto investors have previously seen, but it ranks much higher in stability and likelihood of profit over time. 

While stark differences exist between trading stocks and crypto, both investment choices can bring profitable returns in an exciting industry. When deciding whether to dive deeper into this space, consider your short- and long-term goals and which types of investments are more suited to your interests.

Things to know to succeed in crypto trading

There is no foolproof way to succeed in crypto trading 100 percent of the time, but following these tips can greatly improve your ability to maximize your returns and minimize your losses. 

1. Crypto trading is all about timing.

Understanding the market trends can help you invest at the right time. The market tends to go in the same cycles, and investing when the prices are at their lowest (or predicted to be) can maximize your returns. Taking time to learn about the trends in the value of different coins in the past years can help set you up for success.

2. Be patient for the right opportunity.

Patience is one of the most important virtues in trading. When new opportunities arise in the investment space, you may hear lots of chatter, and it can be easy to get swept up in the excitement and make a decision that is not right for you. Be patient, research your options, and wait for the right investment opportunity. 

3. Have a good understanding of technical analysis.

Technical analysis in the crypto market can help you predict price movements over time. This can inform when to buy and sell your assets, open trade opportunities, and show overall trends to watch.

4. Know when to buy and sell.

Finding your entry point into a new investment is essential, and you will want to set a goal price point to buy a certain cryptocurrency. Following the market trends can be beneficial in identifying predicted drops and estimating values to purchase at. However, even if you are patient, do your research, and follow your self-imposed guidelines, there still may be a time when it is the right decision to sell your stock. Deciding when to cut your losses at the beginning of your investment journey can help you pull out at the right time without emotions clouding your judgment. Staying logical when it comes to knowing when to buy and sell will be an important skill for trading crypto successfully.

5. Consider diversifying your portfolio.

Several cryptocurrencies are available on the market, each with risks and benefits. When you build your cryptocurrency portfolio, spreading your investment can prevent you from losing it all in one go if a singular asset takes a sharp plummet.  

6. Be able to handle risk.

Cryptocurrency is generally considered more risky than many traditional investments, such as real estate or stocks. Because of this, you need to be prepared for the risk of losing the money you invest (you should be prepared for this with any investment). If you invest with money you cannot afford to lose, you may put yourself in a dangerous position. 

7. Have a long-term vision.

The crypto market notoriously swings in value, often for months. Try to go into your investments with the expectation that you are playing the long game. If you do this, you are less likely to be spooked by a dip in value and sell too early. 

8. Be disciplined.

Cryptocurrency trading requires discipline to build income and investments over time. Learning about trading strategies, picking the right cryptocurrencies, and knowing when to buy and sell can help you meet your trading goals and maximize your outcomes.

Skills you need for cryptocurrency trading

Analytical and research skills can help you evaluate market trends, create a plan to minimize your risk, and find the optimal entry and exit strategies when trading any asset. For cryptocurrency, some of the most important skills to build a successful trading plan include:

  • Adaptability

  • Compartmentalization

  • Skepticism

  • Pattern recognition

  • Patience

  • Discernment

  • Self-evaluation

  • Reasoning

Employing these skills during the trading process will help you keep a clear mind and make decisions based on logical reasoning rather than emotion. This is key for long-term investment success.

Qualifications for crypto traders

You don't need to meet formal educational requirements or qualifications to trade crypto for yourself. However, taking a course can help you learn the basics of trading and improve your understanding of cryptocurrency. This can transfer into your trading and investment decisions and show a longer-term profit increase.

If you are interested in trading cryptocurrency as a career, you may need a bachelor’s degree in finance or a related field. On top of this, many employers look for experience in investments or cryptocurrency, along with relevant coursework and certifications.

Courses and certifications that can help cryptocurrency traders

Cryptocurrency traders looking to take their trading to the next level typically need an in-depth knowledge of cryptocurrency. They can take certifications offered by the Cryptocurrency Certification Consortium (C4), a non-profit organization for professionals who want to demonstrate their knowledge of cryptocurrency. Each certification has a specific focus. The certifications offered are:

  • Certified Ethereum Professional (CEP)

  • Certified Bitcoin Professional (CBP)

  • CryptoCurrency Security Standard Auditor (CCSSA)

For those who would like to be certified explicitly in cryptocurrency trading, the Blockchain Council offers an advanced certification program that is designed to demonstrate expertise in cryptocurrency trading. Completing this certification will give an individual the title of Certified Cryptocurrency Trader™ (CCT).

Develop the skills you need to know how to trade cryptocurrency

Becoming successful in cryptocurrency trading takes time to learn how to analyze and identify market trends, understand when to buy and sell, and determine which assets are right for you. Register for a cryptocurrency trading course on Coursera to start building your knowledge and set yourself up for a career in crypto trading. Consider the Financial Technology (Fintech) Innovations Specialization offered by the University of Michigan to help build skills to achieve your short and long-term crypto trading goals. You'll learn about blockchain, cryptocurrency, and investment techniques.

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