Cryptocurrency Trading in Australia – A Beginner’s Guide

If you’re based in Australia and wish to trade cryptocurrencies from the comfort of your home, you’ll be pleased to know that there are plenty of regulated brokers active in the online space. With that said, the likes of Bitcoin and Ethereum operate in a highly speculative trading scene, so it’s crucial that you understand the risks before you begin cryptocurrency trading in Australia.

In this guide, we explore the ins and outs of cryptocurrency trading in Australia. Not only do we explain how the process works for first-timers, but we also show you the best cryptocurrency trading sites and provide a step-by-step guide on how to trade cryptocurrency in Australia.

How to Start Trading Cryptocurrency in Australia in 3 Quick Steps

Don’t have time to read our guide all of the way through? Below you will find three quick-fire steps to start buying and selling cryptocurrencies right now.

Step 1: How to Pick a Cryptocurrency Trading Platform in Australia

If you want to trade cryptocurrencies in Australia, you will need to use an online broker. The role of the cryptocurrency broker is to facilitate your buy and sell orders by matching your positions with other traders. For example, if you decide to place a $1,000 buy order on BTC/USD, somebody else needs to take the other side of the trade.

The good news is that there are now hundreds of cryptocurrency trading platforms that accept Australian residents. However, knowing which provider to go with can be challenging. As such, below you will find a list of the best Australia cryptocurrency trading sites of 2020.

 

Step 2: Learn How the Cryptocurrency Market Works in Australia

So now that you have a selection of platforms to choose from, we now need to explore how the markets actually work. This is crucial, as cryptocurrencies operate in a highly volatile marketplace, so you need to know what you are doing before risking capital.

Below we break down some of the many things that you need to consider before trading cryptocurrencies online in Australia.

What is Cryptocurrency and How do you Trade it?

In its most basic form, a ‘cryptocurrency’ is a digital currency that allows you to send and receive funds without needing a third-party. Instead, transactions are facilitated by the underlying ‘blockchain’, which is the technology that powers cryptocurrencies like Bitcoin and Ethereum.

The blockchain protocol ensures that cryptocurrencies operate in a decentralized nature, meaning that no single person or authority controls the network. Best of all, each and every transaction that occurs on the blockchain is publicly viewable and cannot be changed or altered once it has been confirmed.

When it comes to trading cryptocurrencies, this operates much like the traditional forex trading industry. That is to say, you will either be trading a cryptocurrency with a ‘fiat’ currency like AUD, USD, or GBP – or alongside another digital currency like Ethereum or Ripple. Either way, you will be speculating on the future value of the currency pair, much like you would when trading forex.

In order to clear the mist, check out the example below of how a cryptocurrency trade might work in practice.

• You want to trade Bitcoin against the US dollar which is denominated as BTC/USD
• BTC/USD  is currently priced at $10,000
• You think that BTC will increase against USD, so you place a ‘buy order’ worth $500
• A few days later, BTC/USD increases to $12,000 representing an increase of 20%
• You decide to cash out your gains by placing a ‘sell order’
• On a stake of $500, your 20% gain amounts to a profit of $100

As you can see from the above, the process of cryptocurrency trading is no different from trading a major forex pair like GBP/USD or EUR/USD. You can trade cryptocurrencies like Bitcoin against fiat countries, as well as against other cryptocurrencies, such as BTC/ETH.

When you trade cryptocurrencies, you can either buy or sell the underlying assets, or trade contracts for difference (CFDs). CFD trading means you speculate on the price without owning any actual cryptocurrencies. This allows leveraged trading, which means you borrow capital from the broker to make larger trades.

What Regulations are in Place for Cryptocurrency Trading in Australia?

Cryptocurrency regulations in Australia are somewhat progressive, insofar that buying, selling, owning, and trading digital coins is perfectly legal. This is also the case with cryptocurrency mining. With that said, the industry is heavily regulated. For example, any cryptocurrency exchanges or brokers that wish to operate in Australia must comply with anti-money laundering laws.

This means that platforms must identify each and every user that attempts to purchase digital currencies in exchange for the Australian dollar. The actual trading of cryptocurrencies is governed by ASIC, which ensures that retail traders are protected from losing huge sums of money.

ASIC does not impose any restrictions on leverage even when trading cryptocurrencies. It is also important to note that cryptocurrency profits are subject to capital gains tax in Australia. This is based on gains that you make when you exchange the digital currency back to fiat currency.

What Risks are Involved with Cryptocurrency Trading in Australia?

There are two risks in particular that you need to take into account when trading cryptocurrencies in Australia. Firstly, and much like any other trading sector, there is always the risk that you will lose money. After all, most newbie traders end up making losses when they first start out, so it’s crucial that you have a firm understanding of the risks.

Secondly, you also face the risk of using a cryptocurrency trading site that subsequently runs into financial difficulties. Alternatively, the platform could encounter an external hack, which is exactly what happened to NZ-based Cryptopia last year.

With this in mind, you should only use a cryptocurrency trading site if the platform is regulated by a tier-one licensing body. This should include the likes of ASIC, or the UK’s FCA. The main safeguard that this presents is the segregation of client funds, meaning that the broker must keep your balance separate from its own working capital.

What Makes a Successful Cryptocurrency Trade?

In terms of making money as a cryptocurrency trader, this can come in many forms. If you’re just starting out, you might decide to utilize a ‘buy and hold’ cryptocurrency trading strategy. As the name suggests, you will buy Bitcoin or another cryptocurrency, holding on to your investment for a number of years, and then hope to sell the coins back to AUD at a much higher price.

Alternatively, you might decide to employ a conventional short-term trading strategy. This is where you buy and sell cryptocurrency trading pairs on a shorter-term basis. For example, you might buy ETH/USD at $200, and then hope to sell it a few hours later at gains of 1-2%. A day trading strategy will also allow you to short-sell cryptocurrencies and apply leverage.

Ultimately, the way you make money in the cryptocurrency trading arena is no different from trading other asset classes. Whether that’s gold, oil, stocks, indices, or interest rates, you hope to buy or sell the asset at a more favourable price than you originally paid!

What Analysis Techniques Can be Used For Cryptocurrency Trading?

If you’re looking to get your cryptocurrency trading endeavours off on the right foot, it’s super important that you learn the ins and outs of analysis. This mainly centres on technical analysis and fundamental analysis, which we explain in more detail below.

• Technical Analysis: This refers to the process of reading price charts. The idea is that you will be analyzing historical pricing trends of your chosen cryptocurrency trading pair. Then, you will need to ascertain how these historical trends relate to the current price of the pair. Technical analysis is supported by a range of indicators and chart reading tools, which you should attempt to learn before risking your own capital. This includes the likes of the RSI (Relative Strength Index), MACD, and Bollinger Bands.
• Fundamental Analysis: While technical analysis focuses exclusively on the charts, its fundamental counterpart is interested in real-world news events. As and when a new development occurs, you will then need to assess how the news will impact the future price of the cryptocurrency. For example, if the US government introduced legislation that governs Bitcoin, this would typically be perceived as positive news. As such, the price of Bitcoin might increase.

Step 3: Choose a Cryptocurrency Trading Strategy

So now that we’ve explained the ins and outs of how cryptocurrency trading works in Australia, we now need to discuss some of the many cryptocurrency trading strategies that you might consider using.

Day Trading

As the name suggests, day trading is an cryptocurrency trading strategy that involves buying and selling cryptocurrencies on a short-term basis. In fact, the trader will rarely keep a position open overnight. This allows the trader to profit from low pricing movements that occur throughout the day. While some positions might be kept for a number of hours, others might be closed in a matter of minutes.

Scalping

In a nutshell, scalping refers to a trading strategy that seeks ultra-small, but frequent profits. The main concept is that the trader will look to make gains from small pricing movements of a particular cryptocurrency pair. Potential gains and losses are often a small fraction of a percentage point, so it’s crucial that scalping is performed at a low-spread broker.

Scaping is most conducive when a cryptocurrency pair is trading within a certain range. For example, let’s say that BTC/USD has been trading between $8,000 and $8,400 for a number of days. Without no signs of a breakout, this would allow the scalper to set up low-risk positions to profit from the trend.

Swing Trading

Swing trading is a medium-term investment strategy that involves keeping a position open for a number of days or weeks. The idea is to trade a trend on the back of both technical and fundamental analysis. For example, let’s suppose that Bitcoin recently broke the physiological zone of $10,000.

With investor sentiment extremely high, Bitcoin continues an upward trajectory for the next few weeks. An experienced swing trader would look to jump on the bandwagon and exit their position before the trend begins to reverse.

Holding

As we briefly noted earlier, a ‘buy and hold’ strategy involves purchasing a cryptocurrency and holding on to the investment for a number of months or years. This particular strategy is best suited for those of you that believe in the long-term future of cryptocurrencies like Bitcoin and Ethereum. Sure, the markets will always go through ups and downs, but by holding onto your coins in the long run, you stand the best chance possible of riding out the waves.

This is an example of a strategy which involves fundamental as well as technical analysis.

Bitcoin Breakout

A break out cryptocurrency trading strategy will see the trader ‘pounce’ when a breakout is imminent. For example, let’s suppose that Bitcoin forms a tight trading range of $8,880 – $9,200 over the course of seven days. In the vast majority of cases, this typically indicates that a breakout is likely. This means that a major move to either the upside or downside is in the making.

A seasoned investor would recognize this and place sensible orders at both ends of the range. In layman’s terms, this means that the trader will cover both directions of the breakout by placing stop-loss and limit orders just above and below the range, subsequently resulting in a low-risk/high-return opportunity.

Step 4: Open a Cryptocurrency Trade

Now that you understand the process a little better, you can open a crypto trade at a broker of your choosing.

The account registration and execution process should be straightforward.

Pros and Cons of Cryptocurrency Trading

Conclusion

Cryptocurrencies now operate in a multi-billion dollar trading arena. While much of the industry is dominated by Bitcoin, it is also possible to trade heaps of other digital currencies. This includes the likes of Ethereum, Ripple, EOS, and Bitcoin Cash.

The good news is that cryptocurrency trading in Australia is now offered by a number of ASIC-regulated brokers. Not only does this ensure that your investment is safeguarded, but you can easily deposit funds with a debit/credit card, e-wallet, or bank account.

References

To ensure we bring you the most reliable and accurate information possible, our writers use primary sources to support their content. These include studies, government resources and commentary from industry experts.

• Moneysmart.gov.au. “Cryptocurrencies and ICOs, https://moneysmart.gov.au/investment-warnings/cryptocurrencies-and-icos“, Accessed June 4, 2020.
• Comply Advantage. “Cryptocurrency Regulations in Australia, https://complyadvantage.com/knowledgebase/crypto-regulations/cryptocurrency-regulations-australia“, Accessed June 4, 2020.

 

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