Best Cryptocurrency Brokers – How to Trade Bitcoin and other Cryptocurrencies

This is our section dedicated to Cryptocurrency trading. Here we will provide professional expertise on everything related to trading Bitcoin and other Cryptocurrencies or Crypto Tokens. There is a lot of information on the internet about Bitcoin and cryptocurrencies, but it is usually chaotic and written by people with very little understanding of markets and trading.

The information you will find on our website related to cryptos is purely from a trader / investor perspective. We will not discuss the technicalities of various tokens, but we will analyze how regular people can invest or trade this asset class in a professional way.

Bitcoin Brokers Warning

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How to Trade Bitcoin and other Cryptocurrencies

There are many ways to trade cryptocurrencies, and every one of them has advantages and disadvantages. This is why it is good to know all available options and decide which one is best suited for you, or even to use a combination of different trading instruments to maximize your returns.

Trading in any asset class (including crypto) can be done in two major ways:

1) By buying the underlying asset, and later selling it

2) By using derivative instruments (contracts) that track the underlying asset

The first option is the most simplistic way of trading. It has its own advantages, because you are in possession of the actual assets, but it comes with great limitations compared to derivative instruments. If you buy, wait and then sell an asset, you can only profit from the value appreciation of that particular asset. This is true for every asset type, from stocks, gold, bonds to Bitcoin and cryptocurrencies.

In order to buy and trade Bitcoin and other altcoins you must use a Cryptocurrency Exchange. More details about this later in the article.

But what if you want to be able to profit from market movements in both directions, like professional traders do? In this case, the only possibility is to use derivative instruments.

What kind of derivative instruments are available for Cryptocurrency trading? Here is the list:

1) Futures contracts on Bitcoin - They can be traded only on CBOE and CME, and are available only for Bitcoin. No other cryptocurrency can be traded using Futures contracts. This option is not available for every-day investors and traders, since it has big entry requirements. Futures are used mostly by institutional investors and very large traders. They are complex instruments that are not suitable for everyone. While we mentioned futures as one of the possible options for trading cryptocurrencies, we will not insist on this one since there are better and more accessible alternatives.

2) Contracts for Difference (CFD) on Bitcoin and other important Cryptocurrencies – CFDs are the instrument of choice for most active traders, because they are very effective and accessible. Trading using CFDs can be done through a CFD Broker, and there are several large international brokers that offer contracts for difference on the major Cryptocurrencies. With CFDs you can profit from market movements in both directions, and you can also increase the profits/losses through the use of leverage. Trading Bitcoin and other cryptos through CFDs gives you unlimited possibilities, as you are in total control.

3) Binary Options on Bitcoin and other major Cryptos – Other derivative instruments that are highly accessible to retail traders are Binary Options. They are simple contracts where traders bet on the direction of the market movement in a predefined timeframe. They offer fixed payouts and can be a great way to enhance your trading arsenal. In certain market conditions they can be used very effectively. There are a few reputable binary options brokers that offer options on Bitcoin, Ethereum, Litecoin and a few more cryptocurrencies. More about them later in the article.

Bitcoin & Cryptocurrency Brokers: Exchanges, CFD Brokers and Options Brokers

As explained above, there are three main ways for regular people to trade cryptocurrencies:

- Through a Cryptocurrency Exchange

- Through a CFD Broker that offers Cryptocurrency Trading

- Through a Binary Options Broker that offers options on Cryptocurrencies

Below we will discuss each of the three methods in detail and present their advantages and disadvantages. We will also present the best cryptocurrency brokers in each category.

Best Cryptocurrency Exchanges

Using a crypto exchange will allow you to actually buy the underlying tokens. You will participate in the price formation process as your trades will be real supply and demand for the traded assets.

Cryptocurrency exchanges are the places where the price of cryptocurrencies are formed. When you hear about Bitcoin price being 11,000 dollars, it means that the average price on the Bitcoin / USD pair on major cryptocurrency exchanges is 11,000. The price is dictated by supply and demand of a certain asset, and the supply-demand dynamics may be different on various exchanges. In times of great volatility, the price of Bitcoin varies from one exchange to another. The prices however tend to equalize during calm markets, since there are traders doing arbitrage between exchanges when there are relevant price distortions.

When you place a large order on an exchange you may actually move the price of the asset, especially when we’re talking about low volume assets such as lesser-known cryptos. However, when you buy/sell derivative instruments such as CFDs, Futures or Options, you are not influencing the market price.

Trading through a Cryptocurrency Exchange has several advantages:

- You actually own the crypto asset, and you can withdraw it to your personal wallet if you want to. This way you can have control of the private keys, and claim your tokens when new coins fork from the main chain.

- The market is 100% transparent, as you see the order book and you buy from other people, not from the exchange itself. The cryptocurrency exchange is only a platform that matches buyers with sellers, and does not act as a market maker.

- It is the best option for those who want to buy and hold a coin for the long term (it is recommended to withdraw it to your personal wallet if you plan to hold it long term)

- You can trade the lesser-known altcoins which are impossible to trade through derivative instruments. Crypto exchanges are the only way to acquire and trade exotic altcoins.

- Some crypto-only exchanges (where you cannot deposit and trade with fiat money) allow you to trade without verifying your identity up to some certain limits. If you want to deposit using cryptocurrencies, it is very fast to get started.

However, there are some big disadvantages as well:

- Depositing money into cryptocurrency exchanges can be very difficult in many parts of the world. Some exchanges do not use fiat money at all, so you will be able to deposit only through a cryptocurrency such as Bitcoin, Litecoin or Ethereum. In order to do this, you must first buy your Bitcoins / Litecoins from somewhere else. Also, even when the exchange accepts USD deposits, it will only accept wire transfers. You will not be able to deposit using a debit/credit card or PayPal.

- You cannot profit when the markets are going down, so you can take advantage of only half of the market action. This forces you to use long-only strategies when trading.

- Cryptocurrency exchanges are not regulated. This makes it a bit riskier when it comes to handing your personal information to an unregulated entity.

- There is also the risk of hacking/theft. Some cryptocurrency exchanges have suffered hacks in the past resulting in the loss of many tokens in their custody. This is why long term holders should keep the coins in their private wallets.

Which are the best cryptocurrency exchanges?

While it is impossible to say exactly which exchange is the best, there are several exchanges that are known to be reliable and handle large transaction volumes. Some of the biggest and most reliable exchanges are: Binance, Bitfinex, Bittrex and Poloniex.
If you are into exotic altcoins and what to be an early adopter of newer coins that have not made it to the big exchanges yet, the place to be is Cryptopia. This is where you will find lots of altcoins that are not listed on other exchanges yet.

Best Cryptocurrency Brokers

Here we will talk about the best CFD brokers that offer cryptocurrency trading. By registering with such brokers you will be able to trade the following coins: Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), Litecoin (LTC), Dash (DSH), Bitcoin Cash (BCH) and Ethereum Classic (ETC).

While trading CFDs limits you to a small number of cryptocurrencies at the moment, the big advantage is that you can trade in both directions and profit even when the markets are going down. And there are many more reasons why you should have an account with a Bitcoin Broker that uses CFDs if you are serious about Cryptocurrency trading.

Below are the main advantages of trading cryptocurrencies with a CFD Broker:

- You can easily deposit money into your account, even with your debit or credit card or online wallets such as PayPal, Skrill or Neteller. Funding your account takes only a few seconds, and you are ready to trade in no time.

- You can profit when markets are moving both up and down. When cryptocurrency markets are overbought and there is time for a correction you can profit in the same way as when the markets are moving up.

- If you are a long term holder of Bitcoin or other main tokens, you can hedge your risk through a CFD contract in times of high volatility or when the markets are falling.

- You can trade on many other asset classes with the same account. Since we are talking about big CFD brokers, you will be able to trade on a very wide range of assets on top of the major cryptocurrencies. You can trade forex pairs, commodities, precious metals, stock indices and even individual stocks on the same platform and with the same account.

- You can leverage your trades and increase the winnings / losses if you want to. Some brokers offer leverage of up to 10:1 for Bitcoin and cryptocurrency trading. This means that you can buy a contract for one bitcoin while depositing only 10% of the market value. Using leverage can greatly increase your profits when the leveraged trades are profitable, but it also increases the risks. If you buy one bitcoin and hold only 10% of its value in your account using all the 10:1 leverage that your broker allows, you will lose all the money in your account if the price of Bitcoin falls by only 10%, and your position will automatically be closed. This is why it is recommended to use lower leverage when trading volatile assets such as cryptocurrencies that can move by more than 10% in a single day. Using a maximum of 3:1 in leverage is best practice when trading cryptos, but you can use no leverage at all if you don’t want to risk too much.

- You can trade with a regulated broker and benefit from the safety of dealing with a regulated and 100% legal business.

- There is no risk of hacking / stealing Bitcoins or other cryptocurrencies, since the brokers don’t hold the assets as they only deal in contracts.

While there are many advantages in using CFD brokers, there are also some disadvantages worth mentioning:

- Trading is less transparent as compared to exchanges, since the contract is based on an aggregated price taken by the broker from a price feed provider.

- You cannot withdraw coins to your personal wallet, as you don’t own any coin. This makes CFD trading less effective for long term holders.

- You are limited to a small number of cryptocurrencies that can be traded.

- Since they are regulated, CFD brokers are not accepting citizens and residents of the United States.

Which are the best Bitcoin brokers?

Some of the largest CFD brokers in the world have added cryptocurrencies to their asset classes, and you can now trade bitcoins and other altcoins with big brokers such as Etoro and 24 Option. The mentioned brokers are all regulated and have a very good reputation built in many years. You can safely use any of them to trade cryptocurrencies or any other assets, including forex pairs at very low spreads.

Best Binary Options Brokers for Cryptocurrency Trading

If you want to add another instrument in your crypto-trading strategies, binary options are an accessible and reliable addition. While binary options don’t have a very good reputation in the online world since there have been many illegal brokers dealing in binary options in the past, the instruments themselves are legit and there are some reliable and regulated brokers where you can safely trade them.

The advantages of trading Bitcoin with a binary options broker:

- Depositing money into your account is fast and can be done through many payment methods, including debit and credit cards or e-wallets.

- You know the exact amount to be won/lost when placing a trade. This gives you total control of your money management.

- You can make a large profit from a trade even when the markets are moving very little, as the payout is fixed.

- Binary options allow you to trade in both directions and profit from ups and downs in the markets.

There are also some disadvantages when trading with binary options:

- Just like with CFD brokers, trading is less transparent as compared to exchanges, since the contract is based on an aggregated price taken by the broker from a price feed provider.

- Your counterparty is the broker which acts as a market maker when selling you options, and you are not trading against other people.

- You are limited to a small number of cryptocurrencies that you can trade.

- You cannot withdraw coins into your personal wallet, as you never buy them.

- Payouts for winning trades are lower than the cost of an option, so statistically you will be losing money if your winning rate is below 60% of the trades. Binary options are generally less profitable instruments than Contracts for Difference.

- There are very few options for trading long term with binary options, as most options have short term expiry times.

Which are the best binary options brokers for Cryptocurrency trading?

It is very important to use a good broker when trading with binary options since there are many brokers with bad reputation that we consider to be unreliable. As far as we know, the best binary options brokers at the moment are IQ Option and Expert Option. Both brokers offer several cryptocurrencies for trading.

Conclusion

There are many ways to trade cryptocurrencies, and professional traders usually use a mix of them. For long term holding and for buying exotic altcoins, you must use a Cryptocurrency Exchange. If you want to do day trading and be an active trader, CFD Brokers are the best option, as they give you additional tools such as leverage and the possibility to short the markets.

Risk Disclaimer: Cryptocurrency trading is not suitable for everyone, and can result in the entire loss of your investment. Trading with derivative instruments such as Contracts for Difference, Futures or Options involves risk and can result in the total loss of your account balance. Do not trade using instruments you do not fully understand. Do not trade with money you cannot afford to lose.

Liability Disclaimer: Our website does not offer trading recommendations and is not endorsing any of the brokers or exchanges mentioned on this page or any other page of the website. We are not liable for any loss that may occur by investing through the companies presented on our site. Please do your own due diligence when investing as you are the sole person responsible for your decisions and actions. The content of this website is not directed to residents and citizens of the United States of America or any other countries where online trading or cryptocurrencies are illegal.

More articles about cryptocurrencies:

Best Undervalued Altcoins to Buy in 2018 on Binance and Cryptopia

One of the best ways to invest in cryptocurrencies is to find quality coins that are still undervalued by the market. Such coins are ideal for the buy and hold strategy, because they are much more likely to increase in value over time than the market as a whole. Cryptocurrencies values are greatly correlated, as the market usually moves in waves... Read More

Resources:

1. Bitcoin - Bitcoin project official website

2. Litecoin - Litecoin website

3. Ethereum - Ethereum website

4. Ripple - Ripple website

5. Bitcoin Cash - Bitcoin Cash website

6. Monero - Monero website

7. Dash - Dash website

8. Coinmarketcap - List of Cryptocurrencies by Market Capitalization

9. Bitcoin.com - News about Bitcoin and Cryptocurrencies

10. Coin Telegraph - Major news portal about Cryptocurrencies

11. Coin Desk - Major news portal about Cryptocurrencies

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