How to trade NFTs
Non-fungible tokens (NFT) are popular digital assets that have been tokenized via a blockchain. While these tokens are a great way to increase your income or diversify your investment portfolio, the path to trading NFTs is not smooth and should not be considered a path to overnight value creation. Since NFTs are digital assets, there is a possibility that the value of your NFT may experience increased volatility. As such, NFT enthusiasts must understand the importance of conducting thorough research when searching for non-fungible tokens and compatible trading platforms.
How to trade NFTs
When it comes to trading NFTs or other crypto assets, a good background in how cryptocurrency exchanges work is beneficial. Crypto exchanges are platforms where you can buy and sell crypto assets, including NFTs. Interestingly, not all exchanges have an NFT marketplace where buyers and sellers meet to trade non-fungible tokens. Therefore, when looking for a place to trade NFTs, always look for exchanges and wallets that have marketplaces.
Here are some important steps you need to take to get started trading NFTs:
Step 1: Register on a crypto exchange or wallet: A crypto exchange with a marketplace is where you meet buyers and sellers to complete NFT trades, while digital wallets are where the assets will be stored. For convenience, you can use the exchange’s wallet as some of these platforms have the OpenSea marketplace API.
Once you have decided which exchange you prefer, you can register and provide all necessary documents needed for the Know-Your-Customer (KYC) verification process, provided the platform is centralized. Decentralized exchanges do not require users to complete KYC verification – all that is needed is to create an account and take care of the recovery phrase.
Step 2: Get ready to acquire NFTs: After you register and set up your account, you can purchase your NFTs. Before this, however, you should understand that NFTs can be purchased either with a cryptocurrency such as Ether (ETH) or another NFT. It is advisable to check which pairs the exchange supports before buying.
Step 3: Trade NFTs on the market: After registering and making sure you have enough funds in crypto or other NFTs, you can visit the marketplace and start trading. You can browse the list or search for the exact NFT you want to buy or sell. After purchasing your NFT, it can be stored in your preferred wallet.
Best Cryptocurrency Exchanges
| Company | Transaction Fees | Currencies | Minimum deposit or purchase | Trade limits |
|---|---|---|---|---|
| Kraken | 0.00% to 0.26% | 185+ | $1 | no |
| Coin base | 0.00% to 0.60% | 200+ | $2 | Yes |
| Crypto.com | 0.00% to 0.075% | 250+ | $1 | Yes |
What you need to open a cryptocurrency trading account
To open a cryptocurrency exchange account there are certain requirements. Let’s take a look at them.
Personal information
The personal information and documentation required to complete the introduction process to a crypto exchange typically includes:
- Full name and email address
- Government-issued ID, such as a passport
- Proof of address, such as utility bills
- Social security number
- Others required by the exchange to meet the requirements for KYC verification
Minimum deposit
In the crypto industry, each exchange has a range of deposits that users must fund their accounts with in order to complete their first trade. For example, Coinbase and Binance require users to deposit a minimum of $50 and $10 respectively to complete trades.
Types of Cryptocurrency Exchanges
Centralized exchanges
Centralized Exchanges (CEXs) are custodian platforms that allow users to securely exchange their cryptoassets and NFTs. These exchanges are secure, but take care of a user’s private key.
Authorities that control these exchanges have the sole right to make decisions regarding the platform. Centralized exchanges have sustainable liquidity as they can partner with platforms that provide them with liquidity.
Decentralized exchanges
Decentralized exchanges (DEX) are platforms that give users sole custody of their private keys and require community consent to make important decisions regarding the platform.
Decentralized platforms eliminate the need for third parties, making transactions cheaper than centralized exchanges. However, users risk losing access to their accounts if they lose the recovery phrase.
Hybrid exchange
Hybrid exchanges are becoming quite popular. These exchanges combine the features of centralized and decentralized exchanges, allowing users to trade crypto seamlessly.
Investing in cryptocurrencies, decentralized finance (DeFi) and other initial coin offerings (ICOs) is highly risky and speculative, and markets can be extremely volatile. Consult a qualified professional before making any financial decisions. This article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies, nor can the accuracy or timeliness of the information be guaranteed.
Factors to consider when opening a cryptocurrency trading account
Safety: With today’s activities of fraudsters, exchanges that protect and update their security architecture have constantly high trading volumes. When opening an account, you should check whether the platform has multi-layer verification for withdrawals, two-factor authentication or whether it is custodial.
Charges: From buying to selling fees, investors should compare the best rates available before investing. As simple as it sounds, fees should never be compromised for security.
Number and quality of supported NFTs: Several exchanges currently support buying and selling of NFTs. But not all NFTs out there are created equal. Some are of high value, but some are not. A significant number of them are not worth the hype. It is important to research the NFTs traded on a marketplace before attempting to invest.
Research tools: Some exchanges provide users with necessary research tools to help them make important trading decisions. These tools include live price feeds, calculators and indicators such as moving averages and moving average convergence divergence.
Storage and storage: This focuses on whether an exchange’s wallet is relatively safe or whether you have sole custody of your private keys, which are necessary to complete crypto transactions. While centralized exchanges take care of these keys, decentralized exchanges give you full responsibility for them. Because centralized exchanges take care of these keys, your wallet or assets could be compromised in the event of a security breach.
Customer service: Some exchanges have excellent customer support while others simply do not. It is important to use a center with good customer support where you can seek support via e-mail, ticket system, live chat or phone should you need help.
Educational content: Educational content is a great way to provide direction to new crypto investors and promote crypto and NFT adoption. While this is not what should determine whether you use an exchange or not, it is important to learn about crypto terminology.
Unlike traditional brokerage firms, cryptocurrency exchanges are not members of the Securities Investor Protection Corp. (SIPC). Therefore, unless the user terms specify otherwise, investors with cryptocurrency assets commingled on a custodial cryptocurrency exchange could potentially lose their money as unsecured creditors.
Common questions
What are NFTs?
Cryptocurrencies are digital assets secured by cryptography, designed to serve as a medium of exchange and exist on a blockchain. Just like crypto, NFTs are tokenized assets on a blockchain that are assigned unique codes to distinguish them from others. Popular examples of NFTs include Bored Ape Yacht Club (BAYC), Crypto Punks, Axie Infinity and several others.
Unlike two cryptocurrencies from the same blockchain which are fungible, NFTs from the same blockchain are identical but not fungible. This is a differentiating factor between cryptocurrency and NFTs.
Given that NFTs are digital assets, there is a chance that their value will increase or decrease. This single factor contributes to the presence of amateur NFTs in the market. As such, caution must be exercised and adequate research conducted to avoid investing in fraudulent NFTs.
How do non-fungible tokens (NFTs) work?
Essentially, NFTs are created through the process of minting where the unique code of each NFT is recorded on the blockchain. NFT minting involves creating a new block where details of the NFT are recorded, validated by a validator, closed and finally added to the blockchain. And through the use of smart contracts, the ownership of the NFT is assigned.
Currently, there are different types of NFTs – music, sports, gaming and fan tokens – and each of them is created through the tokenization process. Tokenization involves dividing a whole lot into smaller fractions.
Is NFT trading safe?
NFT trading is safe provided you do your due diligence and perform thorough research. As mentioned earlier, some NFTs are scams and only research can prevent you from becoming a victim.
Are NFTs bad for the environment?
While there is no empirical evidence to show that NFTs are bad for the environment, there are concerns about the underlying blockchain technology. The computing power required to carry out the embossing process is energy-intensive, therefore more work is needed to ensure that this has a minimal effect on the environment.
How are NFTs valued?
NFTs are valued based on several factors. These include:
- An NFT’s uniqueness
- The level of media hype about it
- Market offer and demand for NFT
What makes an NFT unique is its rarity, and when it is rare, it is called a collector’s item which can often lead to a higher valuation.
Additionally, if the demand for an NFT is high, the value of the asset will be high.
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