What you should know before you start trading cryptocurrency

Cryptocurrencies and digital assets create new possibilities for traders as well as speculative and emerging markets. This growing asset class provides new opportunities and paradigms in financial systems and markets, while also having a somewhat steeper learning curve.

Getting started

There is a lot of room for flexibility and preference in cryptocurrencies, however:
  1. Having a basic understanding of how to use cryptocurrencies can help greatly, especially moving assets.
  2. Research and register with an exchange, ensure all requirements are met before trading.
  3. Fund your account or transfer digital assets onto the exchange when ready, only use risk capital.
  4. Keep your digital assets safely off the exchanges when they aren’t being traded; it will help protect your assets if an exchange is compromised.
  5. Try to limit deposits, withdrawals, or transactions in general if possible; efficient movement or management of digital assets lowers costs for transaction fees and withdrawals.

Digital currency exchanges

Many cryptocurrency trading platforms are not exchanges by a traditional definition. Some may share features or characteristics of traditional currency and market platforms, and others may resemble smaller or OTC-like trading desks. Less established exchanges might list newer and smaller cap coins in order to attract new speculators and traders, though lack of regulation in this area can hurt all parties involved.

Each exchange varies in degree of regulations. Some of these platforms have strict KYC/AML policies and embrace compliance, while others lean toward more open and permissionless market platforms. Like more traditional exchanges, some are region or country-specific although the majority remain broadly accessible. Lax rules and regulations may be a sign of unsafe exchange.
Trading pairs and listed cryptocurrencies also vary. Most trading platforms list the larger cap coins or tokens as they are generally widely accepted in trading pairs. Bitcoin and Ethereum are the most widely used, while recently Tether has seen consistently higher volume as a USD pegged stablecoin. Platforms with tokens built on top of their blockchain also favor trading pairs with native or parent asset, such as ERC-20 tokens listing with ETH trading pairs.
Exchanges aren't always the safest place to leave your digital assets. While some enterprise trading platforms may possess a great deal of insurance or coverage, most are uncertain or unsatisfactory in terms of general holdings. Your digital assets are usually the safest if they are under your own control and possession. Offline and cold storage such as hardware or paper wallets if used correctly would be ideal for storing the majority of holdings. If an exchange is compromised or closed, access to those assets may no longer be available.

Decentralized exchanges (DEX)

DEX protocols allow secured marketplace transactions to utilize and exist on the blockchain. Using a distributing ledger technology provides transparency and immutability to marketplace operations, the underlying protocols and transactions run and are permanently stored on-chain.
Peer-to-peer marketplaces without third party involvement. These decentralized platforms are applications that function without central oversight or management, their operation adheres to strict boundaries within protocols themselves. Decentralized marketplace applications assume the role of third parties to facilitate trading.
Supported cryptocurrencies are generally part of a greater token based economy or market. Digital assets or tokens built on top of Ethereum such as ERC-20 tokens are traded on the AirSwap DEX. These DEX marketplaces might issue their own tokens, such as AirSwap’s AST. Underlying protocols can even become tokenized, such as the ZRX token for 0x Protocol which is the foundation of many Ethereum-based decentralized exchanges.
Supported cryptocurrencies are usually a part of that blockchain ecosystem. Digital assets built on top of Ethereum are traded on AirSwap, an Ethereum-based DEX. They may also choose to issue their own tokens to further leverage their own ecosystem and operations. Other tokens such as 0x Protocol act as the underlying software or smart contract that enables trusted and secure capabilities in building DEX applications.
Digital assets can be held and possessed until the execution of a trade. A major advantage over the traditional exchange model allows traders to hold and maintain custody of their assets without involving a third party until they are ready to trade. Assets are less risky if they are not being stored in a shared wallet.

Good habits and operational security

Care should always be taken when accessing or handling cryptocurrencies, both on trading platforms or any other holdings and wallets. Cryptocurrency is a largely open-source phenomenon, but one should be cautious in sharing or revealing any information online or with others.
Ensure the validity or accuracy of all receiving addresses. Double check that any address you send digital assets to is correct. It is recommended to copy and paste public addresses and wallets or scan QR codes instead of manually entering them (to prevent human error).
Protect your devices and access points. Online and mobile devices always have greater exposure to risks and outside connections. Desktop computers, directly connected or even offline or air-gapped devices provide greater security when managing digital assets. Care should be taken when trading or accessing digital assets on any device, including safe password keeping or preventing physical access.
Use 2 factor authentication. More security should always be added wherever you hold or use cryptocurrencies. Using a phone or dedicated 2FA device will prevent unauthorized access to your wallets or accounts. Always safely record your back-up data offline for recovery if your device is lost or destroyed.
Owning and using exchange tokens can benefit traders. Some exchanges list their own token, such as BNB from Binance - the primary goal being to raise capital and assets. Similar to purchasing shares or staking in a company, these tokens provide several advantages for traders:
  • Reducing fees and being spent in place of traded currencies or assets;
  • Adding more trading pairs for listed currencies on the marketplace;
  • Investment opportunity and speculation on the exchange itself.

Risks vs. Rewards

Cryptocurrency can be a very rewarding asset for investors and traders, as long as caution is used.
  • Cryptocurrency exchanges might provide convenience at times, but they should provide safety and coverage with greater establishment or regulation;
  • Decentralized exchanges fully utilize blockchain technology and design principles and can provide better market efficiency;
  • Always use your own secure devices for managing or transacting digital assets, limit physical access and keep back ups or passwords safe and private.