Cryptocurrencies are probably the biggest deal in the world of trading right now. But an obstacle arises for many wannabe traders – acquiring some crypto in the first place. Specifically, how to exchange cryptocurrency either from fiat currencies or via trading other cryptocurrencies.
Trading doesn’t have to be this obscure, arcane ritual. In fact, it’s very streamlined these days: A few clicks and – voila! You’ve got some Bitcoin, Ether, or Doge in your crypto wallet. Thanks to crypto exchanges and our guide, you, too, can start trading like a pro in no time.
How Crypto Exchanges Work
Before we proceed to talk about wallets, exchanges, and all the terminology, there’s a burning question we need to answer first. It’s a simple one: What is a cryptocurrency exchange?
In short, it’s an exchange office like any other, except it’s exclusively online and allows you to purchase and sell various cryptocurrencies, either exchanging them for other cryptocurrencies or using fiat currencies like dollars, euros, and pounds.
A crypto exchange is a website that works as an intermediary between a person who wants to purchase coins and the other party who’s selling their crypto. The two transactions don’t have to happen simultaneously, meaning that the exchange always has a certain stock of the currencies it offers for trading, so you can quickly purchase cryptocurrency without waiting for another person to offer you a trade.
How To Exchange Cryptocurrency
So, you’ve found an exchange that has a stock of crypto coins you’re after. You’re ready to start crypto trading. But, how do you actually do it?
First of all, you need a Bitcoin wallet. It’s completely free, and creating one takes no more than a minute. While most coin exchanges offer their own wallets, we recommend having a wallet separate from the exchange. Not only is it a way to improve security and avoid losing any bitcoins, but it’s much easier to have a stand-alone wallet if you plan on using multiple exchanges.
That’s all fine and dandy, but we still haven’t explained how to exchange cryptocurrencies. After setting up a wallet, you’ll, of course, need to register for an account at one of the exchanges. Most likely, you’ll also have to verify that account by providing some information, so be sure to read all the terms and conditions to know what you’ll need to provide in advance.
Once your account is set up and active, the only step left is to choose a cryptocurrency you’d like to purchase or sell and initiate the transaction. The site will display its current conversion rate when selling cryptocurrency and when buying it.
Important Things To Remember About the Cryptocurrency Exchange Market
Here are some essential points to pay attention to when trading crypto.
Not All Exchanges Are the Same
Even though they all may seem similar at first glance, there are actually two types of exchanges, and they significantly differ in the way they operate.
The exchanges we discussed in the previous section are centralized. Owned by companies, they offer to buy Bitcoin and other cryptocurrencies directly from their reserves, which they amassed from people who wanted to sell Bitcoin to them. It’s how the vast majority of these sites operate nowadays.
Decentralized exchanges are meant for direct cryptocurrency trading between two parties. They can’t exchange crypto online for fiat or vice versa, though. You need to already own some crypto to purchase another coin through a decentralized exchange. Currently, they’re uncommon, but the demand is growing since experienced traders are looking for more secure crypto trading deals.
Trading Fees and Taxes Still Apply
An exchange always has certain fees for processing payments, no matter if it’s operating with crypto or not. The fee can be charged in the form of an unfavorable exchange rate during the cryptocurrency trade or as a per-transaction fee that’s added on top of the amount you’re already paying. Some sites prey upon rookies who are still learning how to exchange cryptocurrency, so be sure to double-check everything before finalizing a transaction.
Another important thing to keep in mind – crypto trading is a taxable transaction, unlike directly purchasing coins from an exchange. This is especially important to consider if you’re a US resident. Crypto is usually treated as trading with gold or real estate and taxed accordingly. Direct wallet-to-wallet transactions and gifting crypto are not taxable, though.
Crypto Isn’t Stock
This should go without saying, but it’s worth reiterating, especially since this is a cryptocurrency exchange guide, after all. Even though they may seem like it, cryptocurrency exchanges and trading itself are not a part of the stock market. Unless someone explicitly offers to give you stocks in exchange for your Bitcoin, you can’t purchase or sell Bitcoin for stocks of any kind.
Some people may be heard saying they’re “playing the crypto stock,” but in reality, they’re just speculating using cryptocurrencies and either selling off that crypto when the price rises or exchanging it for another, more exciting crypto – and not actually going to Wall Street and purchasing stocks there.
A Short List of Bitcoin Exchanges
Finally, let’s look at some of the most well-known places where you can purchase and sell many kinds of cryptocurrencies. We won’t go into detail with these sites as their list of accepted currencies constantly evolves. What matters the most is that all of them are reputable and highly regarded in the crypto community as the go-to places for traders – newbies or experienced – for all of their crypto-related needs.
How do I exchange crypto?
Learning how to exchange crypto isn’t so complicated anymore. In fact, the process has been completely streamlined. You need a cryptocurrency wallet before visiting one of many online exchanges where you can either purchase or trade your crypto for another currency. Depending on the exchange, you may need to verify your account before being able to trade cryptocurrencies, which can take up a few days due to processing. But, after your account has been verified, you can quickly trade any currencies by selecting what you’d like to purchase.
Which exchange is best for cryptocurrency?
If you’re unsure where to buy Bitcoin, the best course of action would be to visit any of the exchanges we listed earlier in this article. These are the most well-known exchanges, with the most extensive list of supported currencies. Pretty much every trader has used these websites at least once.
How do cryptocurrency exchanges work?
An exchange works as a middleman between a party that sells and the party that wants to purchase a cryptocurrency. But, the trade doesn’t happen in real time. Instead, it’s asynchronous, meaning that these transactions don’t occur at the same time. That’s why a crypto exchanger keeps a particular stock of most of its popular assets and can instantly sell you these crypto coins.
Can you transfer crypto from one exchange to another?
Yes, it’s possible to transfer your coins between two exchanges. Best of all, you won’t need an additional wallet for this operation; you just initiate a transaction like any other.
How do I convert bitcoins to cash?
Converting bitcoins into cash, or selling coins, as it’s most commonly called, can be done either by making an agreement with another crypto user or through an exchange. The latter method is much safer. If you’re a beginner in trade, be sure to read how to exchange cryptocurrency to learn all the ins and outs of trading. Our guide covers all the important steps for both purchasing coins and converting them into cash.