Are you interested in NFTs but have no idea how to get started?
NFT trading has boomed in popularity in recent years. In April 2023, it was estimated that the total number of NFT traders on the Ethereum blockchain reached more than 3 million!
In this guide, we’ll break down everything you need to know to get started trading NFTs — including a step-by-step process to help you buy your first NFT and tips to help you become a more successful NFT trader.
What are NFTs?
NFT stands for Non-Fungible Tokens, which are unique digital assets that can represent anything from images, videos, music or even tweets.
What separates NFTs from other digital files that you can find on the Internet is their exclusivity. Typically, an image on the Internet can be copied, pasted, and shared an infinite amount of times. However, NFTs owners have their ownership verified by the blockchain.
In recent years, NFTs have become a worldwide phenomenon, with NFT projects like Bored Ape Yacht Club (BAYC) and CryptoPunks offering benefits to users and generating billions of dollars in transaction volume.
What is NFT trading?
NFT trading refers to the process of buying and selling NFTs on marketplaces like OpenSea and Rarible. Successfully trading NFTs involves making educated guesses about which projects are mostly likely to grow in popularity and increase in value in the future.
Why is NFT trading so popular?
NFT trading rose in popularity during the pandemic, as the asset class became more well-known and NFT projects like BAYC soared in value.
While some NFT traders enjoy the community that NFT projects provide and the benefits they confer, other traders see the opportunity for huge profits.
NFT trading can be incredibly lucrative. The price of a BAYC. NFT was originally 0.08 ETH (around $220). As of April 2023, the cheapest Bored Ape Yacht Club on OpenSea is listed at 50 ETH (around $96,000).
Is there an exchange for NFTs?
NFT marketplaces allow investors to buy, sell, and trade NFTs. All you have to do to get started is connect your cryptocurrency wallet!
Let’s walk through 3 popular options for NFT marketplaces.
OpenSea: OpenSea is one of the world’s most popular NFT marketplaces. The platform’s user-friendly interface makes it easy to buy, sell, and trade NFTs!
Blur: Blur is a relatively new NFT marketplace that launched in October 2022. The platform quickly overtook OpenSea and became the biggest NFT marketplace by trading volume. Blur’s popularity is commonly attributed to its low fees and its practice of airdropping tokens to loyal users!
Rarible: While Rarible is not as popular as the other two platforms mentioned above, it’s considered a trustworthy and artist-friendly option. Rarible allows artists to set high royalty fees so that they can make more profits off of secondary sales.
How do people make money trading NFTs?
Typically, the best way to make money while trading NFTs is identifying successful projects early. While there’s no way to guarantee that a project will be successful in the future, there are certain features that you can look at to make informed investment decisions.
- Benefits: One way to determine whether an NFT project will be successful is to look at the benefits the project provides to users. For example, Bored Ape Yacht Club gives users access to future airdrops, exclusive merchandise, and access to in-person live events!
- Community: Often, NFT projects give investors access to a community — such as access to exclusive Discord channels and the opportunity to collaborate with other community members. To get a better sense of what kind of community your NFT project has, you can take a look at the project’s Discord and its following on social media platforms like Twitter.
- Artwork: Some of the world’s biggest NFTs have unique artwork that helps to attract new community members. For example, Art Blocks became famous for being one of the most popular NFT projects to use generative art created entirely by software!
- Founding team: The best NFT projects have founders who engage with the community after the initial mint and make an effort to continually provide benefits. For this reason, many investors only invest in projects where the founding team is fully doxxed — meaning that their identity is publicly available.
How do I start trading NFTs?
Let’s walk through a few steps to get started buying, selling, and trading NFTs.
- Get started with a wallet that supports NFTs: The first step to trading NFTs is getting started with a browser wallet that supports NFTs and cryptocurrency. Popular options include MetaMask and Coinbase Wallet. Creating a wallet just takes minutes!
- Choose an NFT marketplace: Once you’ve created your wallet, you can choose an NFT marketplace that allows you to buy, sell, and trade NFTs. Popular options include OpenSea, Rarible, and Blur.
- Browse and Select NFTs to Buy: Once you’ve found a marketplace, you can find NFTs that interest you and fit into your budget. You can filter NFTs by price, type, and other parameters. Make sure to do your research on the NFTs you're interested in — which should include research about the founding team, rarity, and the project’s reputation in the NFT community.
- Purchase your NFT: Once you’ve found an NFT that interests you and you’ve done your research, you’re ready to purchase your first NFT! You may need a cryptocurrency like Ethereum to purchase your first NFT — though sites like OpenSea do offer the option to purchase NFTs through a credit card.
- Manage your NFTs: As you continue to buy NFTs, it’s important to keep track of your collection. You should keep a close eye on your purchases and see how the value of your NFTs fluctuate over time. NFT/crypto portfolio trackers like CoinLedger can help you track your assets.
How do I be successful trading NFTs?
Let’s walk through a few tips that can help you be a more successful NFT trader.
Track the market: For the best results, it’s important to keep an eye on which way the NFT market is trending. A positive shift in overall market sentiment can lead to positive price movement. In addition, platforms like OpenSea show the biggest trending collections on the marketplace so you can get a better sense of what's most popular at the current moment!
Know your budget: To minimize your risk in NFT trading, it’s important to set a budget and stick to it. Because NFT trading can be risky, you should not invest more than you can afford.
Dive into NFT projects that interest you: It’s important to do your research before purchasing an NFT! You should research the project’s founding team and learn more about the project’s community.
Why you should be careful when trading NFTs
As with any asset class, there are risks to trading NFTs. It’s important to be cautious before diving in — especially given the lack of regulation in the space currently.
High volatility: The value of NFTs can fluctuate rapidly and unpredictably. This can result in significant gains or losses, depending on the timing of your trades.
Scams and frauds: Unfortunately, there are many scams and frauds on popular NFT marketplaces. These scams include copyright infringements and ‘rug pulls’ — where founders make grandiose promises but exit the project shortly after mint.
Limited liquidity: Compared to other assets, NFTs are relatively illiquid. While it’s easy to sell your cryptocurrency on exchanges like Coinbase, you may have trouble finding a buyer for your NFTs when demand is low.
How do I keep track of taxes when trading NFTs?
Before you get started trading NFTs, it’s important to remember that NFT trading is subject to tax.
When you buy an NFT with cryptocurrency, you’ll incur a capital gain or loss depending on how the price of your crypto changed since you originally received it.
When you sell or trade away an NFT, you’ll incur a capital gain or loss depending on how the price of your NFT has changed since you originally received it.
Keeping track of your NFT and crypto taxes can be difficult. Luckily, crypto tax software like CoinLedger can help. Just plug in your wallets and exchanges and let the platform generate a comprehensive tax report — including all of your crypto and NFT transactions!
Frequently asked questions
What platforms can I use to trade NFTs?
NFT marketplaces like OpenSea, Rarible, and Blur are popular options to buy, sell, and trade NFTs.
How do I convert NFTs into cash?
You can convert your NFTs into cryptocurrency by selling them on NFT marketplaces like OpenSea. Then, you can transfer your cryptocurrency to exchanges like Coinbase to trade it for fiat currency.
Is NFT trading profitable?
While NFT trading can be profitable, it’s important to remember that NFT trading is risky and the majority of NFT projects are not successful.
Frequently asked questions
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