Investing VS Trading In CryptoCurrencies

No, no, the Bitcoin ship hasn’t sailed yet, so if you’re thinking you’re late to the party – You’re not! Sure, it would have been great to buy Bitcoin at 100 bucks back in the day, but there’s still plenty of room to go up, so you can bash yourself for not buying it then, or you can make the best of it and buy it now… or simply trade it. Yup, these are the two choices you have, so if you want your shiny Bitcoins in your own wallet, you’ll have to visit an exchange, otherwise, a brokerage will do just fine. The big question is: Are you a HODLer or a Trader? Only you can answer it but maybe we can help.

Know Your Cryptos: Are You A HODLer Or A Trader?

First of all, you have to answer the HODLer/Trader question. If you are into Bitcoin and altcoins because you believe in the cryptocurrency market for the long term, you will probably want to HODL. But we need to take a quick detour: what the heck is HODL?!?

It is actually a typo of HOLD. Around 2013 a guy posted a thread on the biggest Bitcoin Forum, naming it “I AM HODLING”. Bitcoin was crashing, his girlfriend was away at a lesbian bar and some alcohol was involved, so the guy was pretty down and decided to not give a F## about the typo which became legendary. I am glad he didn’t! Since then, HODL became the go-to word for people who want to own Bitcoin in special and cryptocurrencies in general. It’s kinda the opposite of trading because HODLers hold their coins and do not trade them on a day to day basis.

A HODLer simply buys and stores his crypto in the safest wallet possible, waiting for Bitcoin to reach the Moon, while a trader will probably trade cryptos each day, each week or as often as he sees an opportunity. Depending on what you want to do with your Bitcoins and altcoins, you will have to join an exchange or a brokerage.

Are you HODLing? Go To An Exchange!

When you deal with exchanges, you are buying (or selling) cryptocurrency and what you buy is what you have. You can take it out, move it to your own wallet, spend it, change it to other cryptocurrencies, change it to fiat money (“fiat” is the old and soon-to-be-obsolete currency we are using right now) or you can hold on to it and hope it increases in value. It’s yours! So you can do whatever you want with it.

 
Risks:

Hacks. There have been several successful hacks on some of the biggest exchanges. Some are still around (Bitfinex), others are not (Mt Gox). This is the main reason why it’s wise to store your newly purchased cryptocurrency in your own wallet

Ill intent from the owner’s part. The Company that runs the exchange can simply close up shop and disappear with the users’ funds. Or they can say “We’ve been hacked and it’s all gone”. To my knowledge, this hasn’t happened yet and I hope it never will, but hey, it’s a rough world so better safe than sorry.

 
Pros:
Advanced trading platforms, with proper charts, Order Book, Market Depth and all those things that make you look like a serious investor who knows what he’s doing.

High liquidity – meaning that if you want to buy, there will always be someone selling and vice-versa.

 
Cons:
The verification process can take a while. Due to Know Your Client (KYC) rules, you will have to submit photos of your ID, proof of residency and if you want to buy with a credit card, you will have to send them a pic of the card you are going to use.

Buying on some exchanges can be quite tedious. Some are very easy to use (like Coinbase) and for others, you will need serious skills.

Not anonymous. They have a photo of your ID and know where you live, so… yea, not anonymous.

Are You Trading? Go To A Broker!

When you use a broker you don’t hold the actual Bitcoin or altcoins and instead, you are trading derivatives on it. I don’t want to get too technical here, so let’s put it this way: you will trade Binary Options or Contracts For Difference (CFD) on Bitcoin. This means that when Bitcoin goes up, your CFD makes money (assuming you hit Buy and not Sell). With Binary Options, things are similar: if you hit Call (Up) and Bitcoin increases in value by the time the option expires, you make a predetermined amount. Here’s a list of trusted brokers that offers cryptocurrency trading on their platform.

Always remember that you will NOT own Bitcoin if you are trading CFDs or Binary Options. You cannot withdraw your crypto, you cannot send it to anyone, you cannot buy stuff with it. However, if your trading is successful, you will make a profit in fiat money.

 
Risks:
Lots of scams

Withdrawal issues

Many brokerages offer a Bonus when you open an account and deposit. If you accept such a bonus, your money will be tied to the platform until you reach a certain trading volume

Lack of transparency from the brokerage

 
Check our this article on How to Avoid 7 (Too) Common Bitcoin Trading Scams

 
Pros:
Easy to open an account

Protection against huge market fluctuations. If the crypto market collapses, you can simply close your CFD position and you’re done. You will probably take a hit but it will be smaller than if you own the cryptocurrency. On the other hand, you can always sell your owned crypto and buy it back when the market rallies again.

 
Cons:
See all the Risks above. Yea, those are Cons as well

Barebone trading platforms (some have good platforms though)

Over the top marketing and high-pressure tactics to make you deposit more

So Who Wins? Investing Or Trading

It all depends on your personal goals and skills. If you are going to go the long-term HODL route, you should use an exchange so you can gain custody of the coin. If you are a good trader, you can go to a brokerage and trade CFDs all day: prices go up and down all the time so if you can see those tops and bottoms, trade them and be rich.

Again, all that matters is what you want to do with your crypto. Just remember: buying at an exchange will get you ownership of the cryptocurrency but when you hit Buy at a brokerage, you don’t own the coin, you only trade it.