Interested In Trading Crypto? Here Are A Few Tips

At the same time, you shouldn't start trading with no information at all – while you can earn significant profits through these investments, the wrong move can also leave you bankrupt.

Cryptocurrency is a significantly more risky investment than stocks, especially since it is unregulated by any government. There are several factors that you need to keep track of, including cybersecurity, all of which can leave you feeling extremely overwhelmed.

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To make things easier for you, here are some tips you should keep in mind when investing in crypto.

Keep Cybersecurity in Mind

Just because you cannot hold on to your crypto coins the way you can with conventional currencies doesn't mean that you don't need to take steps to protect them. With traditional money, you will need to invest in a safe or a locker or store it in a bank to be confident that it is secure.

With cryptocurrency, this means taking cybersecurity seriously – more than you have already been doing so. Some strategies you can use to reduce the likelihood of a cyber-attack targeting your crypto include changing passwords for each online account you have and avoid sharing your secret key that is used to validate that you are the owner of your online wallet. Furthermore, always work with reputable wallets and exchanges, and work to understand what their security features are.

Choose the Right Cryptocurrency Exchange

A cryptocurrency exchange is a business that allows you to trade and invest in cryptocurrencies. There are numerous options available online, and it's essential to make sure that you're using the right one. Some steps you can take include thoroughly researching the exchange's security measures and their authenticity and legitimacy, reviews from existing users of their experience using the exchange, and the purchase methods they offer. If possible, opt for a local exchange. If you live in New Zealand, you can consider using an NZ exchange for purchasing cryptocurrency to make trading a little easier for you. This ensures that the exchanges will accept transactions in your local currency, and you won't have to lose money due to currency conversions.

Before choosing an exchange, analyze a few different options. Keep in mind that most – if not all – exchanges have several fees, including transaction fees. Before making a final decision, compare the fee structures, so you can identify the option that has the most advantageous fee structure.

Use a Wallet

If you leave your cryptocurrency on the trading platform you buy it from, your coins will be extremely vulnerable to hackers. To reduce the likelihood of you losing your crypto to a cyber attack, it is extremely important to use a digital wallet.

Some factors you will need to consider when choosing a wallet is whether you're looking for a hot or a cold wallet. A hot wallet is one that is connected to the internet, while a cold wallet is a portable device on which you can download your crypto coins to store offline. There are several providers available for each of these two options. When choosing between hot and cold wallets, you should also keep in mind that cold wallets can be significantly expensive and can cost as much as $200. If possible, consider using multiple wallets to distribute your cryptocurrencies. Like diversification with conventional investments, spreading your crypto investments over multiple wallets can reduce the risks that come with owning this online currency.

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Don't Forget About Coin Conversion Fees

Aside from platform and transaction fees, one of the biggest fees to keep in mind when thinking about crypto is coin conversion fees. Think of these as being similar to currency conversion fees. These are fees that you are charged when you convert one type of cryptocurrency into another. Some factors that affect the amount you will pay in coin conversion fees include how much crypto you're looking to exchange, which coin you're converting, which coin you're converting it to, and so on.

Additionally, fees differ based on trading platforms, so you should also analyze coin conversion rates before choosing a platform or any exchange. If you're also planning on using your crypto to pay for items instead of purely as an investment, consider separating the crypto you use for retail transactions from that you have bought as an investment. Once you do so, you can buy crypto that you will use for retail transactions in the format you plan to pay in. This will significantly reduce the number of coin conversion fees that you will have to pay, cutting down on the money you lose.

Remember Your Taxes

While crypto is seen as an unconventional investment instrument, it cannot escape one of the two certainties in life – taxes. Your crypto holdings are considered to be the property of the government, and it is taxed accordingly. This includes paying income taxes on any gains made by your crypto investments. The more you make on the investment, the more you pay in taxes. However, the challenge that arises is that most crypto platforms do not include a tax summary for your account the way traditional brokerages do. This, in turn, makes keeping track of how much you owe the government more challenging. Regardless of this fact, you have to keep track of your earnings (or losses) and pay the relevant income taxes. Unless you have experience with this section of income tax law, hiring an accountant to handle your taxes can be extremely helpful for crypto owners.

Crypto is a quickly growing investment instrument, and timing your entry and exit from the market correctly can allow you to make a lot of money relatively quickly. However, as mentioned above, this instrument also comes with a lot of risks attached to it. To mitigate this risk, it's essential to also invest in the traditional stock market and other stable investment instruments. If you do decide to invest in crypto, however, it's important to keep yourself as protected as possible – and hopefully, this guide will help with exactly that.

Lesley Montoya

Update 06 May 2021