How to Trade Ethereum (ETH)?

Updated on Aug 21, 2019 at 12:14 pm UTC by Liza Mazuryna · 8 min read
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Photo: Shutterstock
Photo: Shutterstock

While there is a variety of alternatives available on the market when it comes to Ethereum trading, we decided to assist you with a choice composing this step-by-step guide on how to trade ETH.

Many know that Ethereum is one of the biggest cryptocurrencies globally, coming second only after Bitcoin. However, comparing the benefits, Ethereum is leading the game: the platform has a promise of delivering the most groundbreaking solution to build smart contracts on, and with all likelihood, Ethereum will only gain more attention in the future.

Before, however, we move on to a more detailed explanation, it is useful to know what Ether is and what are the key drivers behind its price.

Ethereum Basics

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As for the start, Ethereum and Ether are not entirely the same thing. While Ethereum is a common name for the blockchain-based software platform that has a smart-contract feature on top, Ether as itself is a digital currency unit traded on the exchange. Consequently, when deciding to trade Ethereum, what actually traded is Ether.

Being a comparatively novel phenomenon on a technology domain, Ethereum is still in its young age. That is why its price is largely affected by a variety of events linked with its internal network as well as the general situation on the market. As well as Bitcoin, Ethereum shows a highly volatile price that undergoes through a number of changes every day.

Ethereum is based on blockchain technology which serves as the basis for all of its transactions and computational services. As soon as the network expands, the value of Ether and all related services is going to be the first ones affected. Besides, what is important to store in mind is the number of coins – in case of Ethereum, it is unlimited and has no cap is imposed over it.

Thus, the same as with fiat currency, it all comes down to supply/demand relations: the price cannot get high enough if the currency is ubiquitous and traded on a broad scale. That’s what the Ethereum community tends to be skeptical about.

Another major influencer, if not a price dictator, is Bitcoin. As the price history shows, the trends affecting Bitcoin are having a substantial effect over Ether too. For instance, at times when Bitcoin is flooded with investments, Ethereum is having its momentum as well (the other way around is possible too).

The reason for that lies in belonging of these digital currencies to the same asset class. When confidence in one rises, the general perception towards cryptocurrency market shifts to the positive, what has a direct effect on the prices of other digital tokens. That is why the impact of Bitcoin price has to be considered when investing in Ethereum.

How to Invest in Ethereum

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There are a few simple steps you should follow in order to perform a successful trade with Ethereum.

Open Up an Account on the Exchange

That step requires some prior knowledge or research on what exchanges will best correspond to your needs. Also, the geographical location and regulations are going to be the defining factors, since those can narrow down the choice considerably.

Generally, the majority of exchanges these days give you the option of purchasing Ether directly, with no need to buy an intermediate currency first (e.g. Bitcoin). However, smaller platforms may still require you to do that, so this is something you have to take into consideration.

Top Up Your Account with Ether

This can be achieved by transferring money through a bank account or credit card. One important distinction between the two is speed – while credit card transfer is almost instant, to transfer of money from a bank may take as long as a week.

Perform a Trade

This is the main step during which the Ethereum will be eventually sold and your benefits acquired. On the stage of trade, the most important is to choose the right strategy – this will be the first step towards a successful outcome. There are two main ones: buy & hold and active trading. We will look into more details below:

Buy & hold. This strategy essentially is about purchasing cryptocurrency and then storing it in a safe place. As easy as it sounds, it is, in fact, the least difficult of the two. So, once you decided to move forward with buy & hold, then Ether has to be placed in cold storage in a highly protected and reliable wallet of your choice.

Generally, both paper and hardware wallets can hardly be challenged when it comes to security. Paper wallets are based on an offline mechanism allowing you to get a printed version of the information you need to access Ether storage, while hardware wallets are small USB-like devices that are meant to store private keys. Either way, both of the versions are highly protected against cyber-crime and provide reliable long-term storage.

However, you still have to be mindful of one thing: since both of the wallets have a physical representation, they can be stolen with not much complication and accessed having a PIN. Therefore, storing hardware wallets in hardly reachable place should be your top priority.

Active trading. This strategy inevitably involves some element of speculation and has to be treated with great caution. No certain rules are defining of when you should buy or sell, so the whole trading process is based on anticipation and expectations. That is why technical analysis is often used as a popular tool to measure and predict the next step.

With active trading, the most important thing is to minimize the losses and place alerts, – these things will help you tremendously in the trading process. To start, Poloniex exchange has a possibility of setting stop-limit orders – the same as in the case with Forex brokerage.

But, unfortunately, by far not all of the platforms provide you with a chance of doing so (e.g. Coinbase), – therefore, market movements have to be set up manually. This can be done via TradingView – even though it is a paid service, it will largely assist you in a trading process and is highly recommended for the ones determined to start active trading.

Top Wallets for Trading ETH

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While there is a variety of crypto wallets available on the market, not all of them are actually suitable when it comes to trading. To assist you with a choice, we, therefore, made a selection of best wallets applicable for the purpose of ETH trading.

Poloniex

Being not a simple cryptocurrency exchange, it is rather an advanced trading platform that in no way best suits for buying and selling ETH. Encompassing the features of both, Poloniex offers its services in more than 80 countries where the users can benefit from advanced data analysis tools and charts in addition to the basic features. Only transaction fees of 0.2% apply, otherwise leaving withdrawal and deposit completely free of charge.

Kraken

In comparison to Poloniex, Kraken also opens up the possibility of exchanging cryptocurrency into fiat and the other way around. What is more, the platform is one of a few crypto exchanges offering the possibility of margin lending with up to 5 times leverage on trades and futures to the customers based in the US.

One interesting fact about Kraken: it provides the information to Bloomberg Terminal and is the first one with trading value and volume to be displayed there. Also, it has a broad base of international clients some of whom maintain close bonds with governments. Worthwhile to know that Kraken levies fees on a per-trade basis.

Coinbase Pro

Perfectly equipped for trading, Coinbase Pro offers high-level charting tools, historical data, and effective order processing. In contrast to Coinbase, Coinbase Pro is targeted on proficient users and has more advanced functionality on offer. Also, Coinbase Pro has additional verification requirements but overall is available in fewer regions.

While Coinbase is widely distinguished for its simple and user-friendly interface, Coinbase Pro lifts the user experience to the next level and proposes more progressive trading options. Also, since Coinbase is appealing with its simplicity to a wider scope of users, the fees of it are set on a higher plank than Coinbase Pro.

Bitfinex

Established as one of the first platforms accommodating cryptocurrency trading, Bitfinex has nowadays the largest digital asset trading volume in the world. It provides the opportunity of both financed and non-financed transactions – there is even a separate section of the site where participants can deposit funds for unfinanced purchases. Lately, there has been speculation regarding the launch of a new Bitfinex product offering up to 100x leverage.

However, since this exceeds time folds the normal amount of leverage (up to 3.3x in the current offering), Bitfinex will isolate the new product to diminish the risks of ultra-high leverage trading. When it comes to fees, the platform defined price tiers to different amounts in trade: the more the amount increases, the lower corresponding rates are applying.

Conclusion

Ethereum stores gigantic potential. Launched late last year, the project called Lition has already helped hundreds of households in Germany to connect directly to energy producers, thus eliminating the costly intermediary of energy suppliers.

This is not to mention other projects, among which there is Chainlink, a recent development in partnership with Google that aims to integrate real-world data from the Internet onto the blockchain technology. Taking all this into account, Ethereum is likely to gain the spotlight within many years to come – hence, the investors may already be inspired to input their capital in this highly prospective venture.

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