How to buy and sell Bitcoin?

Bitcoin has taken the world by storm. It has captured the imagination of millions of people like a 21st century gold rush and it shows little signs of going away any time soon.

Despite government attempts to put blocks on it in countries like China and South Korea, and the inevitable scaremongering by mainstream media any time there is a significant drop in its value, Bitcoin has held on and continues to go from strength to strength.

You may wonder if you’ve missed the boat when it comes to investing, trading or mining for Bitcoin, or any other altcoin on the market, but that isn’t the case. For shrewd investors there is still a lot of mileage in this and if you buy and sell at the right times you could still see huge profits going into your bank account.

Another thing that's worth noting is the fact that the Dow Jones industrial average took over a hundred years to go from around $30 to $20,000, and Bitcoin did it in less than a decade. It really goes to show the widespread consumer adoption of Bitcoin that we've seen in the last ten years.

  • How to buy and sell cryptocurrencies?
  • How do exchanges work?
  • 5 best tools to start trading Bitcoin:

  1. First tool to start with
  2. Commonly used exchanges
  3. Finding the best cryptos to trade
  4. Charting tools
  5. Join a trading community

There are various ways to buy and sell Bitcoins, such as online, ATM machines, direct contact with sellers, Bitcoin events and meetups. For example, if you want to buy directly from the seller, you need to exchange your address or public key with the seller to transfer Bitcoins. There are websites that connect buyers and sellers like www.LocalBitCoins.com. This may not be the most efficient way, and you may end up paying more. The other option, which is more efficient, is buying it from an exchange. Exchange is basically a virtual meeting place for people to buy and sell at an agreed market price. This is similar to how the stock market and the futures markets work. There's an exchange where you have a number of people looking to buy and a number of people looking to sell. Through that you have what is called price discovery, where you can find out what the true market value is, based on supply and demand.

How do exchanges work?

Basically, what an exchange is and what they do is to provide an efficient environment for people to buy and sell cryptocurrencies. This isn't just for Bitcoin. You can also exchange Litecoin or other alternate coins. The website or the exchange takes a percentage of the trade, anything usually from a tenth of a percent to as high as one percent. So, it can be expensive if you're not careful. You really need to make sure that you're trading through the right exchanges.

To get this started, you sign up with an exchange to start trading. Some of them do require verification, especially if you're going to link it to a bank account or start moving bitcoins into fiat currencies.

Let’s talk about some of the popular exchanges. Please note that these websites may change over the next few years, as Bitcoin is a new environment and there’s still a lot of room for improvement.

5 best tools to start trading Bitcoin

In this section I’m going to be talking about my favorite tools and resources for trading cryptos. Bitcoin and a lot of these cryptocurrencies are traded on multiple exchanges, they are actually traded at slightly different prices depending on which exchange they're on. One of the most common questions that I get is that what is the best exchange to trade Bitcoin or alternative currencies?

1) First tool to start with

The first exchange is Coinbase. This is a great way to get started buying Bitcoin for beginners. Coinbase is one of the biggest cryptocurrency exchanges. Initially, they only allow you to trade four main cryptos including Bitcoin, Ethereum, Litecoin and Bitcoin cash. These coins are some of the largest market cap cryptocurrencies. So, you had enough access to the cryptocurrency market simply through it. Recently, Coinbase has added multiple other coins such as XRP, EOS, Zcach, BAT and Dai.

The good thing about Coinbase is that you can link this directly to your bank account and buy and sell easily. There’s a US dollar wallet that you can actually send money into this account and it will sit there as cash. It doesn't have to be sitting invested in Bitcoin or other coins. It can just be sitting there in US dollars waiting for you to see a good opportunity, which is nice because obviously the US dollar is much more stable than Bitcoin. Coinbase also generates wallets for you, so it makes it very easy for you to start buying and selling Bitcoin or other cryptos. Later on, you can transfer your coins to any other wallets you prefer.

2) Commonly used exchanges

Coinbase is not the best place for active trading, as the fees are pretty high, and they're not really set up that way. If you want to expand your horizon on other types of cryptocurrencies, there are better exchanges, like Bitstamp, itBit, BTC-e, OKCoin, Bitfinex, Binance. These exchanges provide you access to trade a much larger selection of cryptocurrencies than Coinbase. The exchanges are different based on the country they operate in. The question you need to answer first is what country you live in, because certain exchanges have restrictions and availabilities in different places.

Just keep in mind that trading some of the altcoins can be very risky, as they can sometimes be incredibly volatile. Then it just doesn't even make it worth trading them. Another thing about altcoins is that you cannot buy them with US dollars, the only way to buy them is with Bitcoin. What that requires you to do is to first buy Bitcoin before you can purchase these. That means if bitcoin is losing value while you're holding it and trading altcoins with it, you will lose money when you're converting your Bitcoin back into US dollars. The fact that you're actually having to take two investments at the same time, to me, makes it unnecessarily complicated. However during the bubble it made it in some ways exponentially more profitable because both were going up at the same time, so it is one of those things that helped amplify profits for traders in the second half of 2017.

Because of that risk and complication of the process, it's usually a lot easier to just use a website like Coinbase and just trade directly into the few major cryptocurrencies using US dollars.

In some exchanges like Bitfinex, you can actually short through, which means you can make profit if the price of Bitcoin goes down. This is called shorting, where you sell first and then buy back at the lower price.

3) Finding the best cryptos to trade

You can trade cryptos 24 hours a day, which is a big plus. Throughout the day, they have lows and peaks of volume; they do correspond a little with the opening of the US market. From 9:30 to 10:30 or 11:00 Eastern Time we see an increase in volume as the US market starts trading. We see similar increases as other markets open because a lot of traders - whether you're trading US market, the Asian market or the European market - trade most actively in the first hour. So within the first hour of a big market opening, we see a bit of an increase in cryptocurrency volume.

To find the best coin to trade, we need to find the most frequently traded ones, or in other words, which ones have the highest volume. Another factor is the change rate. We want to pick cryptos that have big up and down movements, not side to sides. In the stock market, we find those stocks in gap scanners. In cryptos space, what I usually like to do is start on this website www.coinmarketcap.com.

If you also want to take a look at what the most active exchanges are right now, this website is where you want to start. Just keep in mind, the exchanges listed there are always changing; there are new exchanges coming out, old ones close down and in general this is a space that's constantly evolving.

This site has a lot of information like the market cap, the 24-hour trading volume, the current supply, how many coins are currently out there and what the max supply is. If you click on Bitcoin and go to its page, there’s a section called market. This will show you all the different exchanges or marketplaces that you can trade Bitcoin. What you want to do is sort by pair and find the currency that you use. If you are in the US, for example, it would be BTC/USD, as you trade in US dollars. If you're in Europe, it's BTC/EUR for Euro. Here as shown in the picture, you'll notice one of the most active exchanges right now is Binance.

You can see under that we have Huobi Global, Bit-Z, BinBne and many more. Between them, I look to only trade with maybe the top five or half a dozen exchanges by volume. You don't want to trade in exchanges that have very low volume, because when the liquidity is low you'll get a lot of slippage in your orders. So you just want to go where the biggest volume is.

If you're just getting started, what I would suggest is go here on this site, sort by the highest market cap cryptocurrencies and look at what the biggest exchanges are. Then just get familiar with those exchanges, sign up get accounts, and learn what those exchanges do, if you can or can't trade with them and maybe just start trading with very small sized amounts.

Do not use and consider exchanges like bank accounts; these are not FDIC insured trading accounts like you would have at each trade exchange. These are still risky marketplaces, so you want to make sure that you keep a lot of your value actually in hardware storage such as Trezor or Ledger. Whenever you have your cryptocurrency on an exchange, you don't actually own that cryptocurrency. What you have is credits for that cryptocurrency. You don't own a cryptocurrency unless you have control over the private key.

4) Charting tools

After you get your account set up with the best exchanges for you, then you want to make sure that you have access to the best charting tools. If you want to be an active trader, then you need to use the best charting and order execution tools. The one I recommend is Coinigy (www.coinigy.com); this is an all-in-one trading platform that has charting and order execution for all of the important digital currencies and exchanges. You can link your accounts to Coinigy, actually place orders and track your trades in a single location.

It aggregates all of the currency pair and all the exchanges in one platform. It has listed all of the different exchanges, and when you click on the exchange you want to look at, it'll give you a list of all of the currency pairs that this exchange offers. It also has a really nice user interface and charting tools, where you can add different indicators and strategies.

There are other charting tools like Bitcoin charts (www.bitcoincharts.com) where you can trade dollars vs bitcoin. For each coin, there’s a current price, the chart, average, volume and 24hr average price.

5) Join a trading community

Most people that attempt to trade lose money. There are many reasons why such a large percentage of people do so, but the top reason is a lack of training and education. Trading is a performance activity like golf, poker or other things. If you don’t take the time to learn and practice the most effective strategies and techniques, then odds are you will lose money to more skilled traders. You need a solid strategy to pull the trigger on an entry and how to effectively trade.

Bitcoin can be traded 24/7. It’s very helpful to set up your mobile charts and alerts. You can have price alerts in place by phone apps like Zero block or Coinbase, where you can frame prices, giving you an advantage if you intend to buy and sell at specific prices.

If you want to learn more about trading Bitcoin, check this book on Amazon.