Explanation of digital currency trading platforms
Contrary to what you might think, cryptocurrencies are not bought by a bank or investment company. You must first determine the currency you want to invest in. You can use our article on the best digital currencies for long-term investment to help you make the right decision, and then you must create your own account on one of the digital currency trading platforms to exchange your money for digital assets.
This article will give you a detailed explanation of cryptocurrency trading platforms and the importance of choosing the right platform.
What are cryptocurrency trading platforms?
These refer to a platform or exchange through which you can buy and sell digital currencies, exchange one digital currency for another such as converting Bitcoin to Litecoin for example, and convert digital currencies into fiat currencies and vice versa.
You should know that there is no rule to follow to know the best cryptocurrency trading platforms, but rather you must evaluate your interests and goals to find the exchange that suits you. Are you looking for the Casa platform that does the difficult tasks for you, or the Gemini platform that has the exotic currencies that you aspire to invest in, or will you choose Coinbase that has the best tools that will allow you to gain some knowledge and experience about the field.
Your location may be a hindrance in some cryptocurrency exchanges due to government or national regulations, some countries have banned their citizens from accessing cryptocurrency exchanges at all.
As for the US, there is a lot of chaos regarding the regulation of cryptocurrency exchanges. New York State, for example, requires exchanges to obtain a BitLicense before they can operate within the state, and only allows licensed companies to offer certain approved currencies. You may not find such strict regulations in other states, but each has its own legislation regarding cryptocurrency trading platforms.
You can check information regarding geographic restrictions and accepted national currencies on each platform’s website.
Whether you plan to hold your cryptocurrency holdings within the exchange for a long or short period, the level of security it offers should be of utmost importance to you.
Digital currencies are not backed by any central institution, and your currency holdings are not protected in the same way as money in a bank or in traditional investments. Some cryptocurrency exchanges such as Coinbase and Gemini, hold your USD balance in FII-insured bank accounts, but this insurance does not apply to your cryptocurrency balances.
Some cryptocurrency exchanges have special insurance policies to protect your assets from hacking and fraud. Coinbase, for example, has a $255 million insurance policy, while other platforms like Kraken rely on their own security practices to protect customers rather than insurance policies.
See how much assets the platform holds offline. It goes without saying that cryptocurrency exchanges need to hold some active assets to facilitate trades, but it can be smart to store some coins offline so that hackers can’t access them. Coinbase, for example, says that it stores 98% of customer funds offline, which suggests that it deserves your trust.
You can also look for platforms that increase verification of identity as well as username and password, or you can even stick to the most popular cryptocurrency exchanges to avoid worrying about your assets.
Although fees are important in the process of choosing the right cryptocurrency platform for you, you should not let the high fee structure stop you from subscribing to an exchange, as high fees can translate into high levels of protection and insurance.
You should understand exactly how and when the platform plans to charge you before handing over your assets to them. While some platforms charge a fixed price, others like Cash App charge a fluctuating fee based on price volatility. Fees are often paid after each transaction, and may vary depending on whether you are the buyer or seller, the currency you are trading, and so on.
If you are planning to buy, sell or trade your digital currencies, you must ensure that the platform you choose has sufficient trading volume to ensure the liquidity of your assets. When you use one of the active cryptocurrency trading platforms in terms of deals, your chances of buying or selling your assets at the best prices increase, unlike the passive platforms where you may end up paying a very high price.
Let’s say you decide to buy Bitcoin once its price drops below $32,000. If you are on an exchange with low trading volume, you may actually end up paying a different price than you thought, if the purchase is not actually made until the price goes up again.
There are thousands of digital currencies that exist so far, but it is impossible to find a platform that includes this huge number of currencies. If you are interested in popular digital currencies such as Bitcoin or Ethereum, you may find them wherever you go, but this does not apply to modern digital currencies and those with a small market capitalization.
As a beginner in the field of cryptocurrency trading, you need a platform that gives you the opportunity to advance your knowledge about this field. Coinbase, for example, offers rewards for watching videos and completing quizzes on various new cryptocurrencies through its Coinbase Earn program.
Some other platforms offer courses and articles on their sites to help you grow your knowledge on trading related topics such as Gemini’s Cryptopedia or Binance Academy from Binance.
The issue of storing digital currencies creates a lot of controversy among investors and those interested. Some of them think that it is right to keep the public and private keys associated with your cryptocurrency holdings yourself, while others believe that it is advisable to store them in the digital currency platform that you deal with. As a beginner, we recommend the second option. But you can move on to holding your cryptocurrency assets in your own wallet once you gather enough information about the available storage options to make the right decision.
We know that taxation is complex enough, but given the tax evolution around digital assets, you will definitely have to make sure your personal tax situation is in order before you make a move.
You should also report any trades you make as capital gains on your tax return. This means that you will need to know the value of your cryptocurrency when you buy it in US dollars, as well as its value when you sell it.
There are many additional factors you can consider based on your personal preferences and goals such as customer support, how good the mobile apps are, and even how easy the platform is in general.
Regardless of all of these things, you should make learning and development a priority. Investing in cryptocurrency is a wild and risky field, you are risking your money and putting it on the line. Investing randomly or in a random market may lead you to lose a lot.
Disclaimer: The content of this article is for informational purposes only. The information provided should absolutely not be considered as investment advice or a recommendation. No warranty is made, express or implied, as to the accuracy of the information or data contained herein. Users of this article agree that Money Secrets does not accept responsibility for any of their investment decisions. Not every investment or trading strategy is suitable for anyone. See the risk warning statement.