Brokerage Crypto Investing: A Guide To Getting Started

Investing in cryptocurrency can be done through online brokers, crypto exchanges, or payment services. Online brokers are a good option for those who want to avoid the high risks and volatility associated with crypto exchanges. Traditional brokers typically offer access to a wider range of securities and often allow commission-free trading of Bitcoin ETFs. Crypto exchanges, on the other hand, offer a wider array of cryptocurrencies and direct ownership of the currencies. Payment services like Cash App and PayPal also provide a convenient way to buy and sell popular cryptocurrencies.

When choosing a platform to invest in cryptocurrency, it is important to consider factors such as security, fees, the range of cryptocurrencies offered, and whether you want direct ownership of the currencies. It is also essential to understand the risks involved, as the cryptocurrency market is highly volatile and susceptible to market manipulation.

Choosing a brokerage platform

When choosing a brokerage platform, there are several factors to consider. Firstly, it is important to assess the platform's reputation and regulatory compliance. Look for platforms that are well-established, regulated, and have a strong track record of security and transparency. This will help protect your interests and reduce the risk of fraud or security breaches.

Secondly, consider the platform's fee structure. Different platforms charge different types of fees, including trading fees, withdrawal fees, and currency conversion fees. Some platforms may also charge a spread, which is the difference between the buying and selling prices of a cryptocurrency. It is important to understand the pricing model and details to determine the overall cost of trading.

Thirdly, evaluate the range of cryptocurrencies offered by the platform. If you are interested in trading a specific cryptocurrency or a diverse range of coins, ensure that the platform provides access to your desired coins. Some platforms offer a limited selection, while others provide a wider variety, including popular options like Bitcoin, Ethereum, and Litecoin.

Additionally, consider the platform's features and tools. Look for platforms that offer advanced trading tools, charting tools, and technical indicators if you are an active trader. If you are a beginner, opt for platforms with user-friendly interfaces, educational resources, and simple buy and sell options.

It is also important to assess the platform's security and storage options. Prioritize platforms that offer two-factor authentication and cold storage of funds to enhance security. Additionally, consider whether you prefer to store your cryptocurrencies on the platform or in an external wallet, as this may impact your decision.

Finally, research the customer service and support offered by the platform. Choose a platform that provides multiple customer support channels, such as live chat, phone support, or email assistance. This will ensure that you can get timely help if needed.

Some popular brokerage platforms include eToro, Robinhood, Interactive Brokers, Coinbase, and Gemini. Each platform has its own strengths, such as a wide range of coins, low fees, or user-friendly interfaces, so be sure to research and compare them based on your specific needs and preferences.

Setting up an account

Determine the Type of Brokerage Account:

Decide between a traditional (taxable) brokerage account and a retirement brokerage account (such as an IRA). A traditional account offers more flexibility, as you can withdraw your money whenever you like, but it may also be subject to taxes on investment profits and dividends. A retirement account, on the other hand, offers tax advantages but comes with restrictions on withdrawals until retirement age.

Compare Costs and Incentives:

Review the fees and incentives offered by different brokerage firms. Consider the costs associated with trading options, mutual funds, ETFs, bonds, and other investment products. Some brokers may offer commission-free trading for stocks but charge fees for other services.

Evaluate Services and Conveniences:

Look beyond pricing and consider the additional services and conveniences offered by the brokerage firm. This includes access to research and investment tools, foreign trading capabilities, fractional share trading, trading platforms and mobile apps, branch locations, and any other features that align with your investment needs and preferences.

Choose a Brokerage Firm:

Based on your research and comparisons, decide on a brokerage firm that best meets your needs and investment objectives. Consider the pros and cons of each firm, weighing factors such as costs, services offered, and how they align with your investment goals.

Start the Application Process:

Begin the application process by providing basic identification information, such as your Social Security number, driver's license, tax information, and income details. The brokerage firm will also collect information about your investment goals, risk tolerance, and financial situation. This step can usually be completed online within 15 minutes.

Fund Your Account:

After your application is approved, you will need to fund your brokerage account. You can typically do this by transferring funds from a linked bank account, wire transfer, check deposit, asset transfer, or stock certificates. Keep in mind the minimum funding requirements for different types of accounts.

Buying crypto

There are several ways to buy crypto, each with its own pros and cons. Here are some of the most common methods:

Cryptocurrency Exchanges

Cryptocurrency exchanges allow you to buy crypto directly. Examples include Gemini, Kraken, Coinbase, and Crypto.com. When using an exchange, you will typically choose between a market order and a limit order. A market order buys the crypto at the current market price, while a limit order lets you specify a purchase price and wait for the market to drop.

Traditional Stockbrokers

A few traditional brokers offer access to crypto, such as Robinhood, Webull, TradeStation, and Fidelity. These platforms often provide a user-friendly interface and low or no fees, making them a good choice for beginners.

Peer-to-Peer Money Transfer Apps

Apps like PayPal, Venmo, and Cash App allow users to buy, store, send, and sell crypto directly within the app. This option is convenient if you're already familiar with these platforms.

Bitcoin Exchange-Traded Funds (ETFs)

A Bitcoin ETF tracks the price of Bitcoin and trades on major exchanges. This option was approved by the SEC in 2024, making it easier for traditional investors to gain exposure to Bitcoin.

Crypto Brokers and Trading Platforms

Crypto brokers and trading platforms, such as eToro, Interactive Brokers, and Binance, offer a wide range of crypto assets and advanced trading tools. These platforms may be more suitable for experienced traders.

Other Methods

There are also other, less conventional ways to buy crypto, such as using crypto ATMs, investing in crypto stocks or funds, or even earning crypto through tasks, games, or airdrops.

Remember to do your research and understand the risks involved before investing in crypto.

Storing your crypto investments

When it comes to storing your crypto investments, you have several options to choose from, each with its own advantages and disadvantages. Here are some of the most common methods:

• Custodial wallet: A custodial wallet is a default option for crypto storage, where a third party, such as a crypto exchange, holds your cryptocurrency. This can be through cold (offline) storage, hot (online) storage, or a combination of both. While custodial wallets are convenient and require less work on the user's part, they may not be as secure as other options since you are relying on the security measures of the third party.
• Cold wallet: A cold wallet, also known as an offline or hardware wallet, is considered one of the most secure options for storing crypto. It involves using a physical device, such as a USB drive or a smartphone, to store your public and private keys. Cold wallets can also include paper-based documentation, where you print out your public and private keys. The disadvantage of cold wallets is that if the device is lost, misplaced, or damaged, your funds can be permanently lost.
• Hot wallet: A hot wallet is an online application or software that allows you to store, send, and receive cryptocurrencies. Hot wallets are convenient and easy to use, often accessible through smartphones, desktops, laptops, and tablets. However, they carry a higher risk of being hacked compared to cold wallets.
• Crypto exchange: A crypto exchange is an online platform that enables you to buy, sell, and trade cryptocurrencies. Some well-known crypto exchanges include Binance, Coinbase, and Kraken. While crypto exchanges offer a wide array of coins and tokens to trade, they may not be as secure as other options since they are popular targets for hackers.
• Software wallet: A software wallet is an application that you can download on your smartphone or computer to store your crypto assets. Software wallets are typically easier to use than hardware wallets and can be more convenient for those who want quick access to their cryptocurrencies.
• Hardware wallet: A hardware wallet is a physical device used to store the private keys that provide access to your crypto holdings. Hardware wallets are considered one of the most secure options for storing crypto, as they keep your assets offline and away from potential online threats. Some popular hardware wallets include Trezor and Ledger.

It's important to note that no cryptocurrency storage method is completely risk-free. When choosing a storage option, consider factors such as security, convenience, ease of use, and the level of technical expertise required. Additionally, it is recommended to store the bulk of your crypto in a cold wallet and use a hot wallet for smaller amounts that you want available for trading.

Understanding the risks

Before investing in cryptocurrency through brokerages, it is important to understand the risks involved. Here are some key risks to consider:

• Market Volatility: Cryptocurrency prices are highly volatile and can swing dramatically, resembling a roller-coaster ride. The values of cryptocurrencies like Bitcoin have experienced rapid surges and crashes within a short period.
• Unclear Valuation: Unlike stocks, which are backed by business operations and financial metrics, cryptocurrencies lack concrete financial metrics, making their valuation ambiguous and long-term prospects challenging to predict.
• Cybersecurity Threats: Cryptocurrency exchanges and platforms are frequent targets of cyberattacks and hacks, which can result in the loss of digital assets. It is crucial to choose platforms with top-notch security measures, such as Coinbase, Binance, and Kraken.
• Regulatory Uncertainty: The regulatory landscape for cryptocurrencies is still evolving, and governments worldwide are figuring out how to manage them. This uncertainty can impact the rules for holding, trading, taxation, and creation of cryptocurrencies.
• Lost or Forgotten Passwords: Cryptocurrency is typically stored in digital wallets, and losing access to these wallets due to misplaced or forgotten passwords can result in the permanent loss of investments.
• Central Bank Competition: Regulators and central banks may establish their own digital currencies, which could potentially replace or devalue existing cryptocurrencies.
• High Transaction Costs and Time: Cryptocurrency transactions, especially for Bitcoin, often come with high fees and can take several minutes to complete.
• Environmental Concerns: Cryptocurrency mining, particularly for Bitcoin, has faced scrutiny due to its high energy consumption and potential negative impact on the environment.
• Decentralization Challenges: While decentralization is a key feature of cryptocurrencies, it can also lead to delays or blocks in implementing necessary technological changes or security updates.
• Complex and Expensive: Buying, selling, and storing cryptocurrency can be technologically complex, and the fees charged by exchanges and brokerages for these services can be very high.
• Uncertain Future: The long-term future of cryptocurrencies is uncertain. Central banks are exploring the possibility of establishing their own digital currencies, which may affect the demand for existing cryptocurrencies.

Frequently asked questions