We research all brands listed and may earn a fee from our partners. Research and financial considerations may influence how brands are displayed. Not all brands are included. Learn more.

Bitcoin has gone from a niche interest to a mainstream investment in just over a decade. But while trading crypto has never been more accessible, the ins and outs of buying and selling it are still complicated — and there are plenty of risks you need to understand before getting started.

Like most cryptos, bitcoin is highly volatile: Its price can swing by double-digit percentages in a single day, often due to unpredictable factors such as a bad-news cycle or a celebrity's tweet. That's not a reason to avoid it entirely, but it is grounds for starting small.

Some exchanges let you buy as little as $1 worth of bitcoin, which is a reasonable place to begin. A common rule of thumb among financial advisors is not to allocate more than 5% of your portfolio to volatile assets like bitcoin.

That said, here is our step-by-step guide to making your first bitcoin purchase.

1. Choose a crypto exchange

Crypto exchanges are specialized platforms where buyers and sellers trade digital assets. Think of them as stock brokerages, but for cryptocurrency. Picking the right exchange matters, as it will directly impact the security of your funds, the fees you pay and your overall trading experience.

For first-time buyers, look for exchanges registered with U.S. regulators that have a strong track record of securing user funds. The platform you choose should also be transparent about its fees and easy for beginners to navigate. Trading platforms like SoFi allow you to trade crypto alongside other financial assets, including stocks.

Beginners may want to avoid decentralized exchanges, which operate as peer-to-peer platforms. While experienced traders enjoy them for the added privacy and access to a wider variety of tokens, they lack the liquidity and financial guardrails of centralized exchanges.

2. Create and verify your account

Signing up with a crypto exchange looks similar to creating an account with most financial apps: You provide some personal information, create a password and verify your identity. Centralized exchanges in the U.S. also require you to upload a government-issued photo ID and sometimes snap a selfie as part of a process.

The verification process for these platforms might be a source of unease for investors concerned about online privacy. But it’s a regulatory requirement, not a red flag. The government asks exchanges to do this to prevent money laundering and counter terror financing.

Verification can take anywhere from a few minutes to a couple of days, depending on the platform and the completeness of your submitted documents. While you're waiting, enable two-factor authentication, which adds a second layer of security to your account before any transactions take place.

3. Fund your exchange account

Once your identity has been verified, you'll need to deposit money into your crypto exchange account. Most exchanges offer several funding methods:

• ACH bank transfer. This is the most affordable option, though transfers typically take two to five business days to settle.
• Debit card. Your funds will be available immediately, but the fees are higher, often between 2% and 4% of the transaction amount.
• Wire transfer. Although this method is well-suited for larger deposits and is processed quickly, the originating bank may charge a fee.

Always check your exchange's fee schedule before choosing a transfer method. For smaller purchases in particular, funding fees are a significant percentage of the total investment. Seemingly small fees can quickly add up over time.

4. Place your first buy order

When the funds are in your account, you're ready to start buying. Search for bitcoin by its ticker symbol — BTC — to ensure you're purchasing the right asset.

For your first purchase, a market order is the simplest approach: You pay roughly the current price and the transaction executes immediately. A limit order lets you set your price and wait for the market to meet it, but it adds a layer of complexity that someone making an initial purchase might want to avoid, since you must decide how long the order stays active. You'll also need to monitor the order, as it may never execute if the asset does not reach your specified price.

Before confirming the transaction, review its full cost, including platform fees. A $100 bitcoin purchase might come with anywhere from $1 to $5 in transaction fees, depending on the exchange and how you funded your account. After the transaction is confirmed, save a copy of the receipt — you'll want a record of what you paid come tax season.

5. Decide where to keep your bitcoin

Any bitcoin you buy on an exchange will end up in a crypto wallet hosted by the platform. Crypto wallets are software applications or hardware devices that store your private key, a randomly generated alphanumeric code used to authorize transactions and prove ownership of assets on a blockchain.

Leaving small amounts of bitcoin on your exchange’s wallet is fine, in theory. But when your crypto sits on an exchange, the exchange holds custody of it. That means your funds could be at risk if the platform gets hacked or goes out of business, like what happened when FTX collapsed and billions of dollars in customer funds went missing. For larger amounts of bitcoin, moving it to a personal wallet may be the smart choice because the money is in your hand and not in those of a third party.

If you don’t have the private key to your crypto, then you don’t really own your coins. Holding the private keys to your wallet means you — and only you — control your bitcoin. That’s something worth understanding before you go beyond an entry-level investment.

6. Set realistic expectations

Once you've made your first purchase, expect the price to fluctuate. Bitcoin's volatility is a defining characteristic of the asset, so resist the urge to check the app every hour or panic-sell the first time the price dips — both common mistakes that can be costly.

You should also keep records of every bitcoin transaction for tax purposes. The IRS treats cryptocurrency as property, meaning gains are taxable events. Your exchange will likely provide year-end tax forms, but maintaining your own records provides an additional layer of accuracy and protection.

More from Money

The Basics of Owning Crypto: What First-Time Buyers Need to Know
Best Crypto Exchanges
Best Crypto Wallets