The Basics Of Getting Started With Crypto Investments

Investing in crypto can be a daunting task for beginners. Here's a step-by-step guide to help you get started:

1. Understand the basics: Cryptocurrency is a virtual currency that is secured by blockchain technology. It is decentralized, meaning it is not issued or backed by a central authority. Bitcoin was one of the earliest cryptocurrencies and remains the most well-known and widely used.

2. Choose a platform: Select a reputable cryptocurrency exchange or broker, such as Coinbase, Gemini, or Binance. Consider factors such as security, fees, trading volume, and the types of cryptocurrency available.

3. Create and verify your account: Sign up and complete the verification process by submitting the required documents, such as a copy of your driver's license or passport. This step is essential to prevent fraud and meet regulatory requirements.

4. Fund your account: Deposit money into your crypto account by linking your bank account, authorizing a wire transfer, or using a debit or credit card. Be aware of any fees associated with different funding methods.

5. Place your order: Decide which cryptocurrency you want to purchase, such as Bitcoin (BTC) or Ethereum (ETH). Enter the ticker symbol and the amount you want to buy. You can also purchase fractional shares of cryptocurrencies.

6. Choose a storage method: Consider the security of your cryptocurrency holdings. You can leave it on the exchange in a crypto wallet or transfer it to a separate hot or cold wallet for added security. Hot wallets are online-based and more convenient but carry a higher risk of theft. Cold wallets, such as USB drives, are offline and more secure but require careful handling to avoid loss or damage.

Remember, investing in cryptocurrency carries significant risks due to its volatile nature. Always do your research, invest within your risk tolerance, and never invest more than you can afford to lose.

Choose a broker or crypto exchange

Choosing a broker or crypto exchange is an important step in starting to invest in crypto. You can buy cryptocurrency directly using a crypto exchange or through certain broker-dealers. Here are some things to consider when selecting a broker or crypto exchange:

Security

It is important to choose a platform that prioritises the security of your assets. Leading hardware wallets such as Trezor and Ledger are considered secure options for holding cryptocurrencies. Software-based wallets like Electrum are also a secure option. These wallets provide reinforced security protections like offline storage, encryption, PIN codes, multi-signatures, recovery phrases and anti-tampering mechanisms.

Fees

Transaction fees can vary widely among currencies and platforms, so it is important to consider the fees associated with the broker or exchange you are using. For example, ETPs can come with unique trading limitations and investment risks, and standard trading platforms generally have lower fees than user-friendly options.

Trading volume

The volume of trading on an exchange can impact liquidity. Higher trading volumes may result in better liquidity, making it easier to buy and sell cryptocurrencies.

Minimum investment requirements

Different exchanges and brokers may have varying minimum investment requirements, so it is important to consider how much you want to invest initially.

Types of cryptocurrency available

If you are interested in investing in a specific cryptocurrency, you should ensure that the exchange or broker you choose offers that particular cryptocurrency. Some platforms offer a wider range of cryptocurrencies than others.

Create and verify your account

To create and verify your account, you must first choose a broker or a crypto exchange. While either lets you buy crypto, there are differences between them. A cryptocurrency exchange is a platform where buyers and sellers meet to trade cryptocurrencies. They often have relatively low fees but complex interfaces with multiple trade types and advanced performance charts. Some well-known exchanges are Coinbase, Gemini and Binance.US. These companies' standard trading interfaces may overwhelm beginners, but they also offer user-friendly easy purchase options.

A cryptocurrency broker takes the complexity out of purchasing crypto, offering easy-to-use interfaces that interact with exchanges for you. Some charge higher fees than exchanges. Two of the most well-known crypto brokers are Robinhood and SoFi. With brokers, you may face restrictions on moving your cryptocurrency holdings off the platform.

Once you decide on a cryptocurrency broker or exchange, you can sign up to open an account. Depending on the platform and the amount you plan to buy, you may have to verify your identity to prevent fraud and meet federal regulatory requirements. You may be asked to submit a copy of your driver's license or passport, and even a selfie to prove your appearance matches the documents you submit.

It is important to note that as someone new to crypto, you'll want to make sure your exchange or brokerage of choice allows fiat currency transfers and purchases made with US dollars. Some exchanges only allow you to buy crypto using another crypto, meaning you'd have to find another exchange to buy the tokens your preferred exchange accepts before you could begin trading crypto on that platform.

Deposit cash to invest

Depositing cash to invest in crypto is a simple, straightforward process. However, it's important to note that the time it takes for the funds to become available in your account varies depending on the deposit method and the cryptocurrency broker or exchange you choose.

Step 1: Select a Cryptocurrency Broker or Exchange

First, you need to choose a platform where you can buy cryptocurrency. You can use a cryptocurrency broker, such as Robinhood or SoFi, or a cryptocurrency exchange like Coinbase, Gemini, or Binance. These platforms may offer different fees, security measures, and available cryptocurrencies, so it's important to compare them before making a decision.

Step 2: Set Up an Account

After selecting your preferred platform, you will need to create an account. This usually involves providing personal information, such as your full name, address, and contact details. You may also need to upload a copy of your government-issued photo ID and, in some cases, take a photo of yourself holding your ID. This process is known as Know Your Customer (KYC) or KYC protocols.

Step 3: Add Funds to Your Account

Once your account is set up, you can start adding funds to it. You can typically connect your bank account, initiate a wire transfer, or use a debit or credit card for payment. It's important to note that credit card companies often treat crypto purchases as cash advances, leading to higher interest rates and extra fees. Therefore, using a bank account or wire transfer may be more cost-effective.

Step 4: Choose Your Cryptocurrency

With your account funded, you're ready to start investing in your chosen cryptocurrency. Decide on the cryptocurrency you wish to buy, such as Bitcoin or Ethereum, and enter its symbol (e.g., BTC for Bitcoin) on the platform. Many exchanges allow you to purchase fractional shares of cryptocurrencies with high values, so you don't need a large amount of money to invest.

Remember to only invest what you can afford to lose, as cryptocurrency is a highly volatile asset class. It's recommended to invest no more than 1-5% of your net worth in cryptocurrency and hold no more than 2% of your overall portfolio in any one crypto asset to limit risks.

Place your cryptocurrency order

Once you have chosen a cryptocurrency exchange, you can start placing your orders. There are different types of orders that you can place, depending on your needs and preferences. Here is a step-by-step guide to placing your cryptocurrency order:

Step 1: Understand the Different Types of Orders

Before placing your order, it is essential to understand the different types of orders available. The four main order types for spot trades are limit, market, stop, and instant orders. Each order type has its own advantages and disadvantages, so make sure you understand how each one works before placing your order.

Step 2: Choose the Type of Order That Suits Your Needs

The most common type of order is a market order, which is a simple command to buy or sell a cryptocurrency at the best available price on that exchange. Market orders are easy to implement and are executed almost instantly. However, you will be subject to a "taker fee" for removing liquidity from the order book.

Another type of order is a limit order, which allows you to set a specific price or limit for buying or selling your cryptocurrency. With a limit order, you can buy or sell cryptocurrency at a certain price without constantly monitoring the market. However, limit orders are not guaranteed to execute if the cryptocurrency never reaches the specified price. Limit orders are also subject to lower "maker fees".

Instant orders are similar to market orders but involve exchanges of fiat currencies, like US dollars, for cryptocurrencies. Your trade might come from multiple sellers, and each tranche will be executed at the current market price of the cryptocurrency.

Stop orders, on the other hand, are activated once a specified price, known as the stop price, has been met. For example, you can place a stop order to buy bitcoin when it reaches a certain price, and once that price is met, the order becomes a market order to buy bitcoin. Stop orders can help you take advantage of price swings, but they may fill at a price higher than you intended.

Step 3: Decide on the Amount and Price

When placing your order, you will need to specify the amount of cryptocurrency you want to buy or sell. You will also need to set the price you are willing to pay or accept for the cryptocurrency. Make sure you review your order carefully before placing it.

Step 4: Review and Place Your Order

Once you have chosen the type of order, decided on the amount and price, and reviewed your order for accuracy, you can proceed to place your order. Follow the instructions provided by your chosen cryptocurrency exchange to submit and complete your buy or sell order. Remember to pay attention to any fees or charges associated with your transaction.

Step 5: Manage Your Investments

Cryptocurrency is a unique investment, and how you manage your holdings depends on your investing strategy and goals. Consider adopting a long-term perspective and regular investing, diversification, and investing for the long term. Remember to review your portfolio periodically to assess the need to rebalance your holdings.

Select a storage method

There are two main types of storage methods for cryptocurrencies: hot wallets and cold wallets. Hot wallets are connected to the internet and are more convenient, but they are also more susceptible to hacks. Cold wallets, on the other hand, are not connected to the internet and are thus more secure. However, they are less convenient and can be vulnerable to physical damage or loss.

• Hot wallets
• Crypto exchanges: These are applications that allow you to access and carry out transactions with your crypto. Examples include Coinbase, Binance, and Kraken.
• Hot crypto wallets: These are connected to the internet and allow you to access your crypto more frequently. Examples include Guarda and Mycelium.
• Cold wallets
• Cold storage wallets: These wallets are not connected to the internet and are thus safer from hackers. Examples include Trezor and Ledger.
• Paper wallets: This involves printing or writing your private keys on paper and storing them in a safe place. However, paper can be vulnerable to physical damage, loss, or theft.

When selecting a storage method, it is important to consider the level of security, convenience, and accessibility you require. Additionally, remember that no storage method is 100% safe, and it is always possible to lose your crypto due to theft, device failure, or loss of access keys. Therefore, it is crucial to research and understand the risks associated with each storage option before making a decision.

Frequently asked questions