How to open cryptocurrency trading account

How to Open a
Cryptocurrency
Trading Account
in Australia?

Australia is one of a select few to have recognised cryptocurrencies and legalised trading them. The majority of forex trading platforms now accommodate for cryptocurrency but before you start trading cryptocurrencies, you need to choose a registered crypto exchange or a reputable broker offering a suite of trading products.

Some prerequisites to trade in cryptocurrencies include thorough knowledge of how cryptocurrencies work, their nature and the features, the risks involved in trading, and the regulatory framework in the country in which you wish to trade. This is usually followed by a search for a well established and registered broker, offering the opportunity to trade the cryptocurrency of your choice.

Read on to find out about the status of cryptocurrencies in Australia, ways to trade them, and tips on how to choose a trustworthy broker for your cryptocurrency trades.

What is the Status
of Cryptocurrencies
in Australia?

Cryptocurrency is legal in Australia. The country has allowed for the purchase and sale of cryptocurrencies on exchange platforms using traditional money. This includes Bitcoin (BTC), the first and most popular cryptocurrency in the world, as well as other cryptocurrencies with similar features to Bitcoin. The country has over 300 digital currency exchanges registered under the stipulations of the country’s Anti-Money Laundering and Counter-Terrorism Financing Act 2006.

These exchanges are regulated by the Australian Transaction Reports and Analysis Centre (AUSTRAC), which is the country’s financial intelligence agency and anti-money laundering regulator. The regulator plays a key role in ensuring that the exchanges are not used by criminals for money laundering, terrorism financing or cybercrime. The Australian Securities and Investments Commission (ASIC) is responsible for the regulation of crypto assets and tokens introduced as financial products.

At a time when governments and financial institutions across the world have been wary of legalising digital currencies, the Australian government re-classified Bitcoin and other similar cryptocurrencies as property in 2017, thereby subjecting digital assets to Capital Gains Tax or CGT.

The openness of Australian organisations to accepting cryptocurrencies as payment is also evident in the recent collaboration between the Australian post office and Bitcoin.co.au, which allows Australians to pay with Bitcoin at post offices locations throughout the county. Consumers can buy Bitcoin and other cryptocurrencies from several physical locations, with thousands of Bitcoin ATMs now available.

These ATMs are simple to use and allow the user to select how many Bitcoins they want to purchase, insert their cash and the Bitcoin is deposited into a mobile or paper wallet. The process is reversed when a user wants to sell Bitcoin. These ATMs work by connecting the user to their account at a cryptocurrency exchange.

How to Trade
Cryptocurrencies?

There are two ways to trade cryptocurrencies. You can either buy/sell a cryptocurrency directly or trade in cryptocurrency CFD's through a broker. Before you start trading cryptocurrencies, there are certain aspects of digital currencies that one needs to understand.

Factors Driving
Cryptocurrency Prices

Unlike fiat currencies such as the Australian Dollar (AUD), United States Dollar (USD) or British Pound (GBP), general economic and political news do not usually play an important role in determining the market price of cryptocurrencies. Apart from the demand and supply for these currencies, factors that impact price fluctuation include news related to the regulation of the crypto sector, security breaches, introduction of new cryptocurrencies and the acceptance of digital currencies into existing infrastructure.

Risks
Involved

As it is a relatively new concept, trading cryptocurrencies is considered to be high risk. Similar to trading shares or commodities, they should be taken up as part of a well-planned strategy with adequate measures in place for managing the risks involved. Regardless of your capital, trading cryptocurrency is possible as the crypto exchange will allocate a portion of the nominated digital currency equalling the value of the fiat currency deposited by you. The amount received will be determined by the market price of the particular crypto at that time. Investors should be aware that trading fees or commissions may be associated with any purchase or subsequent sale.

Speculation
Based Trade

Cryptocurrency brokers offer trading CFDs (contracts for difference), which are instruments that allow traders to speculate on the future price movements of cryptocurrencies and take positions accordingly. Actual movement in line with a trader’s prediction will yield profits, while contrary movement will result in losses.

Leverage

CFD trading in cryptocurrency can be done with leverage, meaning that a trader can enter into positions that are much larger than the funds available to them. The trader needs to deposit the margin money with the broker to start trading, while the broker lends the remaining amount based on a predefined ratio. Leverage should be used with care as it can lead to significant losses.

Analysis

Fundamental analysis of the cryptocurrency markets, availability of a currency, and its application is all important for trading digital currencies. This is possible by studying the asset, keeping yourself abreast of the information on the various coins, their capitalisation, supply and trading volume. Similarly, technical analysis of price movements of a cryptocurrency in the past is highly useful too.

The two ways in which one can trade in cryptocurrencies are:

1. Direct Purchase

With this method, the trader needs to buy a digital wallet to store the directly bought cryptocurrencies. The purchase of cryptocurrencies is done via a registered exchange that offers to buy and sell digital currencies in exchange for another cryptocurrency or fiat currency.

The major drawback of this option is the risk of cyber theft and hacker attacks that often target exchanges. In addition, there have been reports of exchanges closing down and leaving investors in the lurch. A customer needs to open an account with an exchange that is registered with the relevant regulatory authority. Some exchanges may accept fiat money, while others may not, which means you may need to buy a cryptocurrency first and then deposit coins into the exchange wallet to start investing.

2. Trading in Cryptocurrency CFDs Via a Broker

This option is usually safer and does not require a trader to hold a digital wallet or open an account with an exchange. Instead, the trader needs to open a trading account with the broker, who may be a member of not one but several cryptocurrency exchanges. In this way, they can offer greater flexibility and liquidity to its customers.

The secure platforms used by these brokers also reduce the risk of hacking and online theft. The trader opens an account with a broker that is both registered with the relevant regulatory body and offers trading in the desired cryptocurrencies.

When Do You Need to
Buy a Digital Wallet?

One of the most important prerequisites for buying cryptocurrencies is to have a secure digital wallet, where one can store their crypto assets. The wallet is a software program to store the private and public keys, as well as to interact with several blockchains to enable users to send and receive digital currencies and monitor their balance.

While one can store their crypto holdings on the exchange through which they intend to trade, it can be highly risky, keeping in mind the potential for security breaches or hacking.

Several types of crypto wallets, such as mobile, desktop, hardware, and paper, are available. To start cryptocurrency trading, one needs to get a mobile or web wallet. The popular cryptocurrencies have their official wallets, such as the Bitcoin Core Wallet, MyEtherWallet, or Litecoin-QT. Apart from these, some exchanges have in-built wallets.

These virtual wallets, used to store digital assets, can be downloaded from web browsers or through smartphone app stores and purchasable hardware devices. The key to keeping this wallet safe is to keep all your passwords and private keys safe. Any lapses on this front may result in the loss of your holdings. Enabling two-factor authentication and use of multiple digital wallets to store your cryptocurrency holdings are some of the ways to protect your assets.

What are
Cryptocurrency
Exchanges?

Cryptocurrency exchanges are places where people can trade cryptocurrencies, like Bitcoin, for other digital currencies or traditional fiat currencies, like the US Dollar or the Australian Dollar. These exchanges connect buyers and sellers and charge a fee for each transaction. Traders usually look to open accounts with exchanges that offer good liquidity and low spreads. Most exchanges feature an order book that will indicate what traders are buying and selling and where they are doing this

Opening an account with a cryptocurrency exchange is a simple process that involves traders providing an email address and setting a password. This is followed by a verification process to enable the trader to deposit and withdraw funds from their account.

Individual purchase and sale of cryptocurrencies, by opening an account with an exchange, can expose one to various risks. Apart from the aforementioned risk of hacking and other security breaches, some other issues one should be aware of while trading via an exchange are:

1.

Fee Charged: Most exchanges charge trading fees for each transaction.

2.

Payment Methods: The majority of cryptocurrency exchanges offer a wide range of deposit methods.

3.

Geographical Restrictions: Some exchanges are accessible from only a few countries, while others can be accessed from more countries.

4.

Ease of Use: The ease of using an exchange’s platform or software plays an important factor for traders.

5.

Products Being Offered: While there are hundreds of cryptocurrencies in the market, only a few are actively traded. The most common cryptos currently being traded include Bitcoin (BTC), Ripple (XRP), Ethereum (ETH), Litecoin (LTC), Stellar (XLM) and EOSIO (EOS).

What are the
Benefits of Trading
Cryptocurrencies
Through Brokers?

Cryptocurrency brokers are registered brokerage houses that offer trading in cryptocurrency CFDs through a dealer network, rather than a centralised exchange. Cryptocurrency CFD trading enables individuals to trade and invest in cryptocurrencies by entering into a contract with a broker instead of opening a position directly on an exchange. The two parties between them replicate market conditions and settle the difference amongst themselves when the position closes. So, when you are trading cryptocurrency CFDs you are not actually buying the digital currency but speculating on their future price movements.

Here are some of the key benefits of trading via brokers, as compared to directly purchasing through exchanges.

1. Higher Safety

Cryptocurrency brokers regulated by a reputable authority ensure greater safety for the funds of their clients. The classification of crypto financial products is constantly evolving and has seen an increase in the amount of crypto-related businesses required to hold an Australian Financial Services License (AFSL). Regulation ensures strict auditing of the and recourse to legal action for any breaches. Regulated brokers not only comply with the most stringent regulations for investor protection by adhering to strict capital requirements to meet client payout obligations, but also employ sound internal procedures for risk management, financial reporting and staff hiring.

2. Faster Settlement

These brokers offer to bring buyers and sellers of cryptocurrencies together for transactions. The time taken for settlement by brokers is generally much lower than that of cryptocurrency exchanges..

3. Ease of Operating

Opening a trading account with a broker is fairly easy. The process requires a trader to sign up with an email address and provide a password. This is followed by verification of the details provided, which is a prerequisite for the trader to deposit funds and start trading. Reputable brokerage firms have dedicated support teams and Live Chat services.

4. Varied Payment Options

Cryptocurrency brokers offer a variety of methods to their customers to make deposits. Most facilitate for debit and credit cards, BPAY, PayPal and bank account deposits via Poli. Currencies of various countries can be used to make deposits. Remember to check the currencies accepted by your chosen broker before opening an account. Brokers sometimes charge a fee for the withdrawal of funds. So, check the rates charged for withdrawal by a broker before opening your trading account.

5. Ability to short a cryptocurrency

Trading cryptocurrencies as CFDs means you can take advantage of both rising and falling markets. If you believe a crypto will fall, you can choose to open a sell position. If you think it will rise, you may open a buy position.

6. Leverage

These brokers allow traders to leverage their positions, facilitating margin trading. High leverage levels allow traders to gain higher exposure to the market, providing them the opportunity to earn greater profits. However, higher leverage also comes with the risk of high losses, so it should be used carefully. Some brokers offer leverage as high as 30:1.

7. Security and Regular Communication

Established brokers ensure that retail client funds are kept separate from their firm’s capital. Ensuring the safety of their investor funds is a priority for them. These brokers not only conduct timely audits but also provide their clients regular account statements.

What are the
Regulations for
Cryptocurrencies in
Australia?

The progressive approach of the Australian government towards the adoption and trading of cryptocurrencies is visible in their implementation of robust cryptocurrency exchange regulations. Exchanges registered with the AUSTRAC are required to identify and verify users, maintain records and comply with government AML/CFT reporting obligations. Any exchange that is not registered with the authorities is bound to face criminal charges and financial penalties.

With over 300 cryptocurrency exchanges already registered with the AUSTRAC, global digital asset trading platforms have also started showing an interest in the market. The acquisition of Bit Trade, Australia’s oldest operating bitcoin exchange, by US-based Kraken, in early 2020, is a perfect example of this trend.

When and How
to Open a Trading
Account with a
Broker?

Once you have garnered adequate knowledge about the functioning of cryptocurrencies, ways to invest in them and the regulatory framework governing them, you are ready to trade. What needs to be done now is to decide the cryptocurrencies you wish to trade and find a broker who offers them.

Most brokers in Australia offer CFD trading in the top few cryptocurrencies, such as Bitcoin (BTC), Litecoin (LTC), Ethereum (ETH), Ripple (XRP) and Bitcoin Cash (BCH). One can trade these digital currencies via the US Dollar or the Australian Dollar. Do check out the terms and conditions of operating a trading account with a broker before finalising your decision.

Here are some factors that you should consider before selecting a broker for cryptocurrency trading:

1. Choose a Credible Broker

Choose a broker regulated by the Australian Securities and Investments Commission (ASIC). They are known for having strict compliance procedures along with high reliability with funds guaranteed by local Australian banks.

2. Check the Reputation

The reputation of a broker will provide a good idea of their way of doing business and handling customer grievances. Choose a broker with a reputation for keeping the funds of its customers separate from their own capital. This will minimise the risk of falling victim to a potential scam.

3. Trading Conditions

Different traders look for different trading conditions offered by the broker for CFD trading. The amount of leverage offered by a broker allows traders to take advantage of the typically rapid changes in cryptocurrency prices. The number and variety of cryptocurrencies and fiat currencies on offer should also be considered. Also important are the fees or commissions involved. Ideally you are looking for tight spreads to keep your trading costs low.

4. Resources Offered

Brokers are well versed with the functioning of the crypto markets and the factors affecting them. Established and trustworthy brokers offer clients a wide range of resources to help them conduct the necessary fundamental and technical analysis to make informed trading decisions. Market leading brokers offer rich educational resources such as articles, videos, tutorials, economic calendars and other essential tools.

5. Ease of Payment and Withdrawal

Choose a broker that offers several depositing options, rather than just a few limited modes of payment. Make sure you read the terms and conditions as there may be withdrawal limitations. You may be required to withdraw using the same method you deposited or restricted to making a bank transfer to an account in your own name.

6. Quality of Customer
Support Services

Customer support services can be extremely undervalued for new traders. Brokers who provide email support, Live Chat services and toll free phone numbers should be considered first.

7. Demo Account

A great way to get a hands-on experience is by registering and opening a demo account first. This allows new traders to explore trading cryptocurrency CFDs and use the trading platform before depositing any money.

8. Trading Platforms

The platform on which you are going to trade should be simple to operate and easy to understand. Be sure to check the effectiveness and popularity of the trading platforms being offered. MetaTrader 4 and MetaTrader 5 are the most popular platforms for trading in cryptocurrency CFDs.

Once you have finalised a broker for your crypto trading, the next step is to open a demo account to get accustomed to the entire process of trading and understanding the nuances involved. The process of opening a demo account is very simple. All you need to do is provide your personal details, mention the cryptocurrency you wish to trade and select the currency and the country in which you wish to trade in. The demo account should be followed up by opening of a live account. The broker will seek verification of details provided by you, before allowing you to trade.

How to Start
Trading from Your
Account

Now that you have opened a trading account and chosen the cryptocurrencies in which you wish to trade, you need to formulate a trading plan, after considering all the risks involved. List out your goals, identify your risk-taking ability and then take a position, long or short, depending on your analysis of future price movements.

Don’t forget to use measures such as stop loss and take profit to ensure the safety of your funds. You can also enlist the help of various resources provided by the broker or use the in-built options that are part of the trading platform.

Once your trading plan is ready, you can start trading by entering into a long or buy position or short or sell position, depending on your expectations of future price changes. You need to check the ask and bid prices and the leverage being offered to decide on the size of your trade position.

How to Manage
Your Trading
Account?

Once your account is opened and you have chalked out a trading strategy, you can open a trading position. After this, it is a good idea to regularly monitor the market prices and compare them with your predictions. This will help you ensure that the margin amount in your account does not fall to a level where your position gets automatically closed.

In case the margin amount declines, you may need to deposit additional funds. Risk management tools, such as stop loss or take profit orders can help you manage such situations. Once you achieve your targeted position, you can close it by placing an equivalent trade in the opposite direction.

The key to long term success in trading is to be patient and disciplined. Base your decisions on robust analysis and use your free time to extend your knowledge of cryptocurrency trading.

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