How to Use Cryptocurrency Exchanges to Trade Digital Assets

What if you could access a market that operates 24/7, offers global trading opportunities, and isn’t tied to traditional banking systems? This is precisely what cryptocurrency exchanges offer. They create an open and decentralized way to trade your digital assets without any barriers. 

However, thanks to the booming popularity of cryptocurrencies, the number of crypto trading platforms has also increased. Some of these focus on offering robust privacy and decentralization while others offer excellent security and deep liquidity. 

So, knowing how to choose and use these platforms to trade digital assets will become important if you’re into crypto for the long-term. Let’s discuss more about it. 

Cryptocurrency Exchanges – What are They? 

Cryptocurrency exchanges are the backbone of digital asset trading. It allows you to exchange one crypto for another or purchase it by paying through fiat currencies, like EUR or USD.  

Whether you want to invest in Bitcoin, explore altcoin trends, or make short-term trades – crypto trading platforms offer the necessary infrastructure to help you with it. 

Types of Cryptocurrency Exchanges 

While their operational focus is the same, every crypto trading platform comes with unique features and caters to different types of audiences. Here’s what you need to know about them – 

1: Centralized Exchanges (CEXs) 

Binance – An Example of CEXs (Source) 

These types of exchanges are managed by a central authority that works as a “middleman” during negotiations. You can also use its built-in wallet system to store your funds. However, CEXs are vulnerable to hacks, as they store the money in an online, centralized server. 

Examples: Coinbase, Binance, and Kraken 

2: Decentralized Exchanges (DEXs) 

Pancakeswap: An Example of DEXs (Source) 

Contrary to CEXs, decentralized exchanges can operate without any intermediary. For example, you can use platforms like PancakeSwap or Uniswap to directly trade cryptocurrency from your wallet. This, in turn, can improve your privacy even more and reduce the risks of hacking. 

Examples: PancakeSwap, Uniswap, dYdX 

3: Peer-to-Peer Exchanges (P2P) 

Hodl Hodl: An Example of P2P Exchanges (Source) 

These platforms operate by connecting buyers and sellers directly. You’ll get more flexibility here in terms of payment options. However, it’s important to be cautious about scams and frauds. Users can also post their listings on a P2P exchange and negotiate terms with others directly. 

What You Should Know 

• Offers escrow services to ensure secure transactions 
• There’s no centralized authority involved in these platforms  
• Risks of fraud can increase if you’re not using the escrow service  

Examples: Hodl Hodl, Paxful, and LocalBitcoins 

Setting Up an Account: Your Gateway to Crypto Trading 

Before you start purchasing cryptocurrency or dive into active trading on cryptocurrency exchanges, it’s important to choose the right crypto trading platform.  

1: Choose a Cryptocurrency Exchange 

When it comes to choosing a crypto trading platform, there are three aspects that you need to focus on more than anything else. These may include – 

• Security 

An exchange needs to have at least three security features: a two-factor authentication (2FA), a strong encryption or password system, and cold storage for storing your funds. 

• Fees 

Every crypto exchange comes with a specific fee structure, which may include – withdrawal costs, trading fees, and deposit charges. A platform with lower fees doesn’t necessarily mean it’s a better option – as other aspects of the exchange might be compromised (e.g., security). 

• User Interface 

A beginner-friendly exchange will have an intuitive dashboard and an easy-to-understand navigation system. Apart from the design, you should also look for usage of fonts and colors of the website. 

• Supported Cryptocurrencies 

Go through the platform thoroughly and make sure it supports the types of digital assets you are interested in.  

• Reputation and Regulation 

A regulated crypto trading platform offers an extra layer of security and fits within the stringent cryptocurrency regulatory framework. 

2: Creating Your Account on the Exchange 

Setting up an account on a cryptocurrency exchange is quite straightforward. Here are the steps you need to follow for almost every platform – 

• Visit the official website of the exchange and click on “Register” or “sign up.” 
• Write down your email address, phone number (required on some platforms), and a strong password (you may have to write it on another block for confirmation). 
• Activate two-factor authentication to improve and strengthen your account security even more. 
• Clicking on “Confirm” will prompt the platform to send a confirmation code or link to your email address. You need to verify it by either clicking on the link or writing the code. 

Once your website is created, you can access it and start trading cryptocurrency. 

3: Verification Process – Why Does It Matter 

Some exchanges, especially CEXs, ask for KYC (Know Your Customer) verification to comply with blockchain-related regulations and prevent fraud. This improves the platform’s security measures even more by reducing the risk of hacking and money laundering. 

What you’ll need to verify – 

• A clear selfie (or an image of your face) for facial recognition 
• A government-issued ID (driver’s license or passport) 
• Proof of address (bank statements, utility bills, etc.) 

The verification process may take somewhere between few hours to few days – depending on the exchange you’re using.  

How to Trade Digital Assets on Crypto Exchanges? 

There are three types of orders you can place on cryptocurrency exchanges to buy or sell your digital assets. These are –  

1: Market Orders 

It allows you to buy or sell a cryptocurrency at the market price. So, if you are looking for a quick trade to invest your money on another asset again, this would be the right choice for you. 

However, the prices of cryptocurrency will fluctuate even when your order is placed. So, there is a chance that you will suffer a loss. Keeping a close eye on the market trends can help, but it’d still be a quite risky venture. 

2: Limit Orders 

A limit order, on the other hand, allows you to set the price at which you want to buy or sell your digital asset. If the market reaches that price range, the trade will be executed.  

While this strategy can help you avoid overpaying or selling at a lower cost, there’s also a risk of your order not getting filled if the market doesn’t reach your intended price. 

3: Stop-Loss Orders 

Source: The Motley Fool 

A stop-loss order can help limit your losses by selling your assets automatically selling your assets when the price drops below a certain level. It can be an essential tool for managing the risks related to cryptocurrency’s volatility. 

Types of Trading Strategies 

As you are already familiar with how orders work, let’s talk about some fundamental strategies for crypto trading. You can either use one of these or mix them up as you please. 

A: Buy and Hold 

One of our favorite long-term strategies, this involves a user to buy cryptocurrencies and hold onto it, hoping its value will increase in the future. It can be a perfect option if you are buying assets that are more stable, such as Bitcoin or Ethereum. 

B: Day Trading 

As a day trader, you’ll have to buy and sell cryptocurrencies on the same day to capitalize on small price movements. This requires a lot of attention, a proper skillset, and thorough market knowledge to pull off successfully. However, it’s not ideal for long-term traders.  

C: Swing Trading 

With this strategy, you’ll have to buy and hold your digital assets for a few days or weeks to take advantage of the price swings. It offers a good middle ground for those who want to trade without the fast-paced nature of day trading, but don’t want to wait for too long. 

Tip: Once you have placed your orders, it’s important to keep monitoring them. Most crypto trading platforms usually offer a dashboard with tracking tools to check your investments, performance analytics, and price alerts. These can help you make better decisions. 

Withdrawing Funds – Methods and a Step-by-Step Guide 

If you’re ready to move your profits or cash out, withdrawing your assets from the trading platform should be your next step. 

A: Withdrawal Methods 

You can withdraw your digital assets through three options –  

• Bank Transfers: If you have linked your bank account with the crypto trading platform, you can transfer funds directly from it. It’s a very secure process but may need several days or at least one week for completion. 
• Crypto to Fiat Conversion: Some exchanges also let you convert your cryptocurrency into a traditional currency, such as EUR or USD, and withdraw it directly from your bank. It is relatively simple and quicker than bank transfers. 
• P2P Transactions: It’s a decentralized method where you can sell your cryptocurrency to another person on a crypto exchange. P2P transactions will offer you more control, but you may also fall into a fraudulent trap if you are not careful. 

B: Step-by-Step Guide to Fund Withdrawal 

The process of withdrawing your fund is quite simple – 

• Log into your cryptocurrency exchanges account  
• Visit the “withdraw” section or the “funds” tab (in some cases) in your account settings 
• Choose your preferred withdrawal method 
• Enter the amount you want to withdraw  
• Double-check the details and hit on the “confirm” button 

Once it’s done, you must wait for some time before you get your money (from several minutes to a few days), depending on the method you’ve chosen. 

The Bottom Line 

Looking ahead, the future of crypto trading seems to be very promising as more and more people are entering this vertical. However, the market will remain volatile in the future as well. So, if you’re in it for the long run, be sure to focus on creating a viable and strong strategy and follow it through till the end. If needed, talk to a friend who has been a crypto trader before or an expert in the field. Do your own research, too. It will surely be a successful venture in the end.