How to Trade NFTs

How to Trade NFTs

Non-fungible tokens (NFTs) are popular digital assets that have been tokenized via a blockchain. Although these tokens are a great way to grow your income or diversify your investment portfolio, the path to trading NFTs isn’t smooth and shouldn’t be considered an avenue to overnight wealth creation. Since NFTs are digital assets, there’s a possibility the value of your NFT could encounter heightened 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 key steps you’ll need to take to get started with trading NFTs:

Step 1: Sign up on a crypto exchange or wallet: A crypto exchange with a marketplace is where you’ll meet buyers and sellers to complete NFT trades, while digital wallets are where the assets will be stored. For simplicity, you can use the exchange’s wallet, as some of these platforms have the OpenSea marketplace API.

Once you’ve determined your preferred exchange, you can sign up and provide all the necessary documents needed for the Know-Your-Customer (KYC) verification process, provided the platform is centralized. Decentralized exchanges don’t require users to complete KYC verification–all that’s needed is to create an account and take custody of the recovery phrase.

Step 2: Get set to acquire NFTs: After signing up and setting up your account, you can buy your NFTs. Before this, however, you should understand that NFTs can be purchased either with a crypto coin such as Ether (ETH) or another NFT. It’s advisable to check what pairs the exchange supports before making a purchase.

Step 3: Trade NFTs in the marketplace: After signing up and ensuring 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 buying 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
Coinbase 0.00% to 0.60% 200+ $2 Yes 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 a crypto exchange’s onboarding process 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 as required by the exchange to meet KYC verification requirements

Minimum Deposits

In the crypto industry, every exchange has a range of deposits that users must fund their accounts with to complete their first trade. For example, Coinbase and Binance require users to deposit a minimum of $50 and $10, respectively, to complete their trades.

Types of Cryptocurrency Exchanges

Centralized Exchanges

Centralized exchanges (CEXs) are custodial platforms that allow users to exchange their crypto assets and NFTs safely. These exchanges are secure but take custody 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 (DEXs) are platforms that give users sole custody of their private keys and require the consent of the community to make key 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 should they lose their recovery phrase.

Hybrid Exchanges

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 the markets can be extremely volatile. Consult with 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

Security: With the current activities of fraudsters, exchanges that protect and update their security architecture constantly have high trading volumes. When opening an account, you should check if the platform has multi-layer verification for withdrawals, two-factor authentication, or if it’s custodial.

Fees: From buying to selling fees, investors should compare the best prices available before investing. As easy as it sounds, fees should never be compromised for security.

Number and quality of supported NFTs: Several exchanges support the buying and selling of NFTs at the moment. But not all NFTs out there are equal. Some are high-value, but some are not. A significant number of them aren’t worth the hype. It’s important to research the NFTs traded in 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 custody: This focuses on whether an exchange’s wallet is relatively safe or if you have sole custody of your private keys, which are needed to complete crypto transactions. While centralized exchanges take custody of these keys, decentralized exchanges give you full responsibility for them. Because centralized exchanges take custody of these keys, your wallet or assets could be compromised should a security breach occur.

Customer service: Some exchanges have excellent customer support while others simply do not. It’s important to use an exchange with good customer support where you can seek support via email, ticket system, live chat, or phone should you need assistance.

Educational content: Educational content is a good way of giving direction to new crypto investors and promoting crypto and NFT adoption. While this isn’t what should determine if you use an exchange or not, it’s important in educating you about crypto terminology.

Unlike traditional brokerage firms, cryptocurrency exchanges are not members of the Securities Investor Protection Corp. (SIPC). Therefore, unless user terms specify otherwise, investors with cryptocurrency assets commingled on a custodial cryptocurrency exchange could potentially lose their funds as unsecured creditors.


What Are NFTs?

Cryptocurrencies are digital assets that are secured by cryptography, designed to serve as an exchange medium, 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 the Bored Ape Yacht Club (BAYC), Crypto Punks, Axie Infinity, and several others.

Unlike two cryptocurrencies from the same blockchain that are interchangeable (fungible), NFTs from the same blockchain are identical but not interchangeable. This is a distinguishing factor between cryptocurrency and NFTs.

Given that NFTs are digital assets, there’s a chance for their value to increase or decrease. This single factor contributes to the presence of amateur NFTs in the market. As such, caution must be taken and adequate research conducted to avoid investing in scam 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 ultimately added to the blockchain. And through the use of smart contracts, ownership is assigned to the NFT.

Currently, there are different kinds of NFTs–music, sports, games, and fan tokens–and each of them is created through the process of tokenization. Tokenization involves splitting a whole part into smaller fractions.

Is NFT Trading Safe?

NFT trading is safe provided you do your due diligence and conduct thorough research. As stated earlier, some NFTs are scams and only research can prevent you from falling victim.

Are NFTs Bad for the Environment?

While there’s 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 perform the minting process is energy-intensive, hence more work is needed to ensure that this has minimal effect on the environment.

How Are NFTs Valued?

NFTs are valued based on several factors. These include:

  • A NFT’s uniqueness
  • The level of media hype about it
  • Market supply and demand for the NFT

What makes an NFT unique is its rarity and when it’s rare, it’s called a collectible 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.