An Introduction to Investing in Cryptocurrencies: Part 2

An accessible method for personal investment

Posted on May 6, 2017, 9:43 a.m.

In part 1 I described the steps necessary to buy cryptocurrency through Coinbase and transfer it to Poloniex. In this article I will introduce you to trading through Poloniex.

The Poloniex Interface

We have already briefly touched on the "Deposits & Withdrawals" page and the "History" page in Poloniex. The pages actually used for trading with other Poloniex investors are the "Exchange", "Margin Trading" and "Lending" pages. Poloniex automatically provides you with a corresponding account for each of these pages. In order to do anything on any of the trading pages, you need to assign funds from any of your Poloniex wallets to the corresponding account. The "Transfer Balances" page can be used to do this. By default, any currency you deposit in Poloniex is automatically assigned to your Exchange account, so I will begin with describing that page.

Exchange

Make sure you're logged into Poloniex and select "Exchange" from the main menu. This page is used to exchange the cryptocurrencies you hold in your Poloniex wallets for different cryptocurrencies. There is a lot of information on this page and it can be quite daunting when you're first presented with it.

The first area you should look at is the "Markets" area (called "Exchange Markets" on the mobile version). This area displays all of the currency conversion types that exist on Poloniex. There are four tabs near the top (BTC, ETH, XMR and USDT) corresponding to four cryptocurrencies (Bitcoin, Ethereum, Monero and Tether). Clicking each tab gives you a list of all the other cryptocurrencies you can buy and sell for the selected cryptocurrency.

Select one of the currencies from the list. The main chart near the top of the page will change (or on the mobile site a new page will load displaying the chart). The green and red bars on the chart show the change in value over time of the currency you selected from the list valued in the currency corresponding to the tab you selected. On the desktop version of the site you can change how far back in time the chart goes and the length of time covered by each candlestick by clicking the buttons just below the chart.

Below the chart are the three methods you can use to make transactions, buy, sell and stop-limit. The buy and sell mthods are fairly self explanatory and clicking on the list of buy and sell orders below them will fill in details for you. If you click buy and sell and it's not possible to fulfil your request, an "order" will be opened so that if your requested buy or sell can be fulfilled in the future, Poloniex will do so. You can see a list of your current open orders by going to "Orders" in the main menu and then clicking "My Open Orders". The third and final method for creating a transaction is by using the middle "Stop-Limit" block. Here, you set up a buy or sell order that will only be activated once the value of your selected coin reaches the value you specify in the "Stop" field. For more information, see the description of the stop-limit order on the support section of the Poloniex website.

Margin Trading and Lending

Margin trading and lending go hand in hand. In order to margin trade you need to find a lender and in order to lend you need to find someone willing to margin trade. The best place to find out about margin trading and lending is to check out the Margin Trading support page on the Poloniex website.

Research is the Key

Now that you've familiarised yourself with the interface, you're ready to make some actual trades. Due to the vast range of cryptocurrencies out there it can often be quite difficult to narrow down your choice as to which one to buy. Some, if not most of them, will never become significantly valuable and some are almost certainly scams designed to make the inventor some quick cash. The first place you'll want to start are general coin listing sites that give the statistical history of each listed coin. I use CoinMarketCap, but there are many others such as CoinCap and CryptoCompare. Most of the coins will also have a website which will allow you to do much more targeted research. Of course, not all of these will be available to trade on Poloniex, so if you're desperate to buy one that isn't you'll have to explore another exchange.

As well as this there are many websites covering the cryptocurrency world more generally such as CoinDesk, CryptoCoinNews and Cointelegraph. These can be great places to find out about the latest news in the digital currency world and the direction in which currencies are heading.

You may also want to look out for ICOs (Initial Coin Offering), which are similar to IPOs, where cryptocurrency startups sell a percentage of the cryptocurrency to early backers, before it is listed on an exchange, in return for capital to develop their project. Getting in at the right time with an ICO can be particularly profitable, however due to the unregulated nature of these ventures, ICOs are notably risky and so are not generally recommended when you're first getting into digital currency markets.

With that said, due to the incredible volatility of all cryptocurrencies, I have found the best tactic to be to buy a spread of coins and force myself to wait. Trying to predict sudden spikes or drops in price and making regular tweaks to my position has often proved to be futile and in hindsight I would have been better off doing nothing. I tend to keep my main holdings in BItcoin and often Ethereum and Dash as they are some of the most stable coins and ones which I believe have a real future. I will then also buy small amounts of relatively cheap coins in the hope that they will rise quickly at some point. Doing this has allowed me to double my investment every couple of months with very little formal economic training.

Conclusion

You are now familiar with the use of the trading pages on the Poloniex website and have some good resources to research which cryptocurrencies to invest in. In the third and final part of the article I will discuss withdrawing your funds and storing them in a wallet you have total control of, for potentially greater peace of mind.

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