Is it really possible to make money from cryptocurrency trading?  Is it a legitimate long term strategy for wealth creation?  I thought I’d put together a post rounding up the current state of cryptocurrency trading and how you can get started.

Figuring out when to buy and sell

This really is the million dollar question!  And obviously I can’t give you an easy answer.  Trying to predict which direction a cryptocurrency will move is really difficult.  No one can be certain either.  You can however learn some basics of fundamental analysis.  Digital currencies will move based on fundamental factors.  For example, recently a popular digital currency exchange announced they would be supporting Litecoin.  And as a result the price of litecoin jumped.  This was a fundamental force – in this case, a popular exchange would increase the demand of litecoin and therefore more supply would be needed, pushing the price up.

These sort of fundamental forces are what you need to be looking out for, if you want to be a successful cryptocurrency trader.  This means staying plugged into news, understand how the currency actually works, and becoming familiar with charts and how to read them.

Trading Cryptocurrencies at an exchange

Trading cryptocurrencies at an exchange is much like trading forex.  You’re basically looking to profit from the movement of one currency against another.  Most of the time, you’ll be trading bitcoin against the USD or bitcoin against another cryptocurrency.

There are a lot of exchanges online, but there are only a couple I would actually trust.  In the past, exchanges have shut down out of the blue and taken everyone’s currency with them.  The anonymous nature of cryptocurrencies, means this is an added risk.

I currently use Poloniex.  Although I trust them more than most exchanges, I still wouldn’t leave a large amount of currency sitting in my account.  On Poloniex you can trade all the major cryptocurrencies and the markets are fairly deep, meaning your orders won’t sit around unfilled.

If you’re new to trading, then trying to trade on Poloniex or another exchange will be quite daunting.  None of the exchanges have good interfaces.  And unfortunately, unlike forex or stock trading, where you can practice with pretend money, this simply doesn’t exist on these exchanges.  So I would only recommend signing up to somewhere like Poloniex, if you have trading experience.

Buying and Holding a Cryptocurrency

I don’t know if we’ll see another cryptocurrency launch with the potential to double your money hundreds of times over.  Those days maybe gone.   But if you are bullish on a currency then holding onto it, and hoping the price will rise could still net significant returns.

Some people have crazy predictions for bitcoin, and believe the price will soar over a million dollars.  I, just like everyone else, can’t say if that will happen.  Essentially it is a gamble.    Most people who are making money trading bitcoin are doing it by the volatility that happens everyday, and not just holding onto a coin.    But as I’ve said, I still think there is money to be made in holding.

Holding is probably the easiest strategy for newbies.  Trading is difficult and time consuming.  Where as anyone can easily purchase bitcoin in a few minutes.  But as a newbie, its important to remember that there is huge risk involved.  There is no guarantee the price will rise, so never invest more than you can afford to lose.

Hopefully this will inspire you to look more into cryptocurrencies.  There are many different trading options, and I’ve presented just three – mainly because I’ve used all of them and do trust them.  Let me know in the comments how you are trading cryptocurrency.