Trading and Investing

Must-Have Software Solutions for Crypto Traders

Published
May 20, 2019
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    Venture capitalist Marc Andreessen once said that “software is eating the world” — meaning that it’s reshaping the way that we live and work. You probably don’t use a typewriter to write letters and, as a society, we shop at brick-and-mortar stores a lot less often.

    Software has had a big impact on the financial industry, where calculations that used to take a human days can be crunched in mere seconds by a computer. Accountants can automate much of their work; insurance quotes can be prepared in near real-time, and traders have instant access to the technical indicators they need to make decisions.

    The complexity of cryptocurrencies, from both a technical trading and an accounting standpoint, makes software a critical part of day-to-day life. In fact, cryptocurrencies themselves are abstract software artifacts!

    Let’s take a look at some software solutions that cryptocurrency traders can use to improve their trading and analysis and simplify their tax preparation.

    How to Choose a Crypto Trading Exchange

    Some cryptocurrency traders execute trades directly through their exchange, such as Coinbase Pro, while others use third-party platforms capable of trading across various exchanges. There are many different exchange-based and third-party trading platforms to choose from, but a few of them stand out from the rest in terms of features.

    There are three important factors to consider:

    • Low Cost: Trading platforms may charge a fixed monthly fee or a commission on each trade depending on their business model. Fixed monthly fees are usually preferable to avoid conflicts of interest and limit costs for active traders placing many trades.
    • Research & Analysis: Many trading platforms provide research and analysis tools, such as analyst commentary and/or technical analysis tools. Active traders rely on these tools to make informed trading decisions, which makes them an important consideration when selecting the right platform.
    • Alerts & Integrations: Some trading platforms integrate directly with an exchange, enabling real-time trading, while others provide instant alerts via email or SMS. These capabilities are critical to quickly capitalizing on opportunities before they disappear.

    The Coindigy platform has become very popular among professional cryptocurrency traders because of its ability to connect to multiple exchanges and incorporate advanced technical analysis. While basic accounts are free, professional traders can benefit from high-definition charting, advanced order types, and unlimited API accounts.

    The Coindigy platform has four key features for traders:

    • You can trade across more than 45 different exchanges from a single account rather than juggling many different logins.
    • You can access more than 75 technical indicators and trade directly from the chart across multiple exchanges.
    • You can setup and receive real-time alerts via SMS, email, and browsers with 24/7 exchange and wallet portfolio monitoring.
    • You can connect with a growing list of third-party apps and integrations, such as Slack and Google Sheets, to keep organized.

    Many trading platforms designed for traditional financial assets, such as stocks and bonds, also support cryptocurrency-based derivative products.

    For example, TradeStation and many professional stock and futures platforms support the trading of cryptocurrency options on the Chicago Mercantile Exchange (CME) and the Chicago Board Options Exchange (CBOE), as well as exchange-traded products (ETPs).

    Crypto Charting and Analysis Tools

    Many trading platforms include some technical analysis functionality, but they are a far cry from the robust trading systems used by professional traders.

    Many advanced traders rely on quantitative trading systems to generate automatic trading signals based on a set of rules. This lets them remove emotion from their investment decisions and generate more predictable results. These trading systems can even integrate with exchanges to automatically place buy and sell orders.

    QuantConnect is the best-known quant trading platform with support for cryptocurrencies. With data from Bitfinex and GDAX, crypto traders can build and backtest quantitative trading systems in many different programming languages, link them to their brokerage, and automate their strategies. You can even collaborate with others to build trading systems and license them out to other users to generate an income.

    Traders comfortable with programming languages like Python can also build their own trading systems from scratch using their exchange’s API for price data and popular libraries.

    For example, Poloniex provides an API to get crypto market data and send buy/sell orders and there’s a Python wrapper available to build automated trading systems.

    Easy Crypto Accounting Software

    Many cryptocurrency traders treat tax preparation as an afterthought, but by doing so, they could be putting themselves at significant risk.

    The IRS has stepped up its efforts to enforce taxation after suing Coinbase in 2017 and securing the names, addresses, and tax IDs of nearly 15,000 customers. The agency sent a clear message: If you make money with cryptocurrencies, the IRS wants its share of taxes, or else you will be subject to penalties.

    Taxes can be complex for active traders since cryptocurrencies are treated as property rather currency. This means that traders must calculate the cost basis and the gain or loss of every transaction — even if it wasn’t a U.S. dollar transaction. These calculations can be time-consuming if you have thousands of transactions across different exchanges.The good news is that software can simplify the process.

    ZenLedger enables you to import cryptocurrency transactions, calculate gains and losses, and auto-fill tax forms like Form 8949 and Form 1040 Schedule D. The software also delineates short-term from long-term capital gains to simplify the reporting process and minimize tax exposure. You can provide straightforward reports to your accountant and potentially avoid hundreds of thousands of dollars in billable professional fees!

    While software can simplify the tax process, most traders would benefit from a crypto-friendly accountant. Accountants can ensure that any crypto gains or losses are optimized using other parts of your tax situation, as well as keep you in the know regarding the latest changes to the tax laws. These efforts can both save you money and help avoid fines.

    The Bottom Line

    Software helps alleviate many of the complexities associated with cryptocurrencies to enable traders to focus on what matters — finding and executing on profitable opportunities. From trading platforms to trading systems to accounting software, traders should use software to help them in their day-to-day and maximize their profits.

    Sign up for ZenLedger today to start automating your tax preparation and ensuring your accuracy.

    Get Started Now

    Simplifying DeFi, NFT, and Crypto Taxes for Investors and Tax Professionals

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