Have you ever heard of Bitcoin? If you haven’t, you likely live under a rock! Bitcoin is one of the largest cryptocurrencies available, and it’s worth has exponentially increased since its inception. At the time of this article, a single Bitcoin is worth $40,000. Bitcoin is used to send or receive money across the web anonymously.
Unlike traditional monetary systems, Bitcoin isn’t linked to one’s identity but rather an address that consists of a variation of letters and numbers. All Bitcoin users have public keys that can be used as Bitcoin addresses to send Bitcoins and allow everyone to see how many Bitcoins the address has. Private keys can also be used in addition to public keys so that Bitcoin information and addresses are kept more private.
Though a Bitcoin’s value is subject to extreme fluctuations, there have been impressive gains in value over time, making Bitcoin an attractive trading and investment option. The difference between investing and trading Bitcoin lies in how long you plan to hold onto the Bitcoin. Investing is used by people who want to accumulate wealth over time, while trading is short-term and includes buying and selling on the same day. Some high-frequency traders buy and sell in less than a second. The goal of the Bitcoin Trading “game” is to buy into Bitcoin with the expectation that its value will increase; once the value has increased, the trader sells their Bitcoins and withdraws their profits.
Bitcoin Trading for beginners can seem daunting given the jargon associated with the cryptocurrency world, so prior to engaging in Bitcoin Trading, novice traders should do some research, but we will talk you through the necessary information in this article. Here is how to trade Bitcoin-
To effectively and successfully trade Bitcoin, you’ll want to familiarize yourself with how Bitcoin Prices fluctuate. Several variables will influence the price of a Bitcoin, including its supply, cost of production, related press, and internal regulations and governances. Cryptocurrency mining, which we discussed further in a previous article, determines how much Bitcoins are introduced into the market. As miners audit transactions, they are rewarded with Bitcoins, which are then integrated into Bitcoin’s overall supply. There is a cap despite ongoing Bitcoin creation, meaning no more than 21 million Bitcoins will be in reserve.
The Bitcoin price is also dependent upon its demand. If many people want Bitcoin and there isn’t enough in the supply, the price will increase. Bad press about Bitcoins, such as security breaches or questions about the value, will decrease Bitcoin’s price. Bitcoin is decentralized, meaning a majority of its regulations and governments rely on miners. If there aren’t enough miners to conduct audits or the process is too slow, then the value of Bitcoin will go down. These are just some examples of variables that can impact Bitcoin prices. It’s critical that you familiarize yourself with an exhaustive list of variables and continuously monitor the market for signs of potential fluctuations in Bitcoin price.
There are three different ways that you can trade Bitcoins, and your preference will determine how you choose a Bitcoin trading platform. Trading can occur through Bitcoin derivatives, outright buying Bitcoin, or something referred to as the Crypto 10 index.
Trading Bitcoin derivatives consists of predicting the change of Bitcoin’s value; this is CFD trading. This method has its advantages because the price is 50% less than the actual value of Bitcoins, trading derivatives allow for short selling, there are regulations in place to make the process more secure, trading can be executed quickly, and positions can be held overnight.
There are a bunch of limitations associated with outright buying Bitcoins and trading this way. You will be purchasing Bitcoin at full price, cannot participate in short selling, there are no regulations in place for this form of trading, and you cannot hold your position overnight. You may be wondering why this type of trading exists if there are multiple downfalls; well, this form of trading is ideal for those who prefer a buy-and-hold strategy (more information on this below), or those who anticipate that Bitcoin prices will increase and they will make substantial profits.
Rather than solely trading Bitcoins, this option allows you to have exposure to several cryptocurrencies at once. The Crypto 10 Index was created by BITA, a German company, to allow traders to track the top ten leading cryptocurrencies’ performance. The main advantage of going this route is that you’ll have exposure to multiple cryptocurrencies, which can take some anxiety out of trading if you’re uncomfortable putting all your eggs in one basket.
As with all investments and trading, you will need to figure out and hone a strategy. There are four common Bitcoin Trading strategies: (1) Day Trading, (2) Trend Trading, (3) Bitcoin Hedging, and (4) Buy and Hold. We will review each below –
A Day Trading strategy is just like how it sounds; traders will complete the purchasing and selling of a Bitcoin in a single day. The idea behind this strategy is to eliminate possible issues that can occur by keeping your trade in the market overnight. Also, by buying and selling within one day, you won’t get charged the overnight fees often associated with holding overnight positions. Another advantage of this approach is that you can monitor the market more closely to determine whether you want to buy and sell again the next day or hold off a couple of days.
People who use this strategy monitor the trends and purchase Bitcoin when the Bitcoin price appears to be dropping and is at a low point. Trend traders rely on the volatile nature of Bitcoin and assume that the Bitcoin price will rise back up, at which point they would sell their trade. These traders will hold their position longer if it appears there is an upward trend and sell if they believe there will be a continued downward trend.
When one is taking a hedging strategy, they will engage in both long and short trading. Long trading is when traders buy into the market, and if the Bitcoin price goes up, they make money; if the Bitcoin price goes down, they lose money. Some traders opt to simultaneously engage in short trading where they would earn some profit if the Bitcoin price drops. Opening a short position is somewhat of an insurance to make up some profit if the long trading doesn’t work out as expected. Long trading is risky, and millions have been lost by people who engage in this strategy.
This strategy mimics that of investment and is also referred to as “HDOL” based on a famous misspelling in a forum. Essentially one would buy Bitcoin and hold their position even if the Bitcoin price appears to be dropping. The hope of this technique is that eventually, holding the position will pay off.
While determining the strategy you’d like to use for Bitcoin trading, it’s essential to keep in mind whether you prefer long trading or short trading.
Now that you’ve completed all the prep work, you can start finding a platform to perform your trades. The platform you choose will depend much on your desired trading type and trading strategy, but we will give you a few options that can meet the needs of those that we described in this article.
For those of you who would like to trade Bitcoin derivatives or CFD Trading, we recommend checking out Exness, OctaFX, and FXTM. All three of these platforms have low minimum deposits between $1 – $50 and have regulations in place to assure legitimacy. Each of these platforms has additional trading features other than cryptocurrency should you wish to expand your trading horizons!
For those of you who are interested in Bitcoin exchange or outright purchasing Bitcoin in hopes of the value rising, we recommend IQ Options, eToro, IQ Mining, Coinbase, Binance, or CashApp. Coinbase is easy to use and is one of the most trusted cryptocurrency exchange platforms. Also, Coinbase is a fully regulated cryptocurrency exchange platform, which can instill some ease into those who are worried about being scammed. The downside of Coinbase is that there are fees with the base version of the application; this can be avoided if you upgrade to the pro account. Binance is a relatively new platform but has low fees and includes charting to help you make informed trading decisions. The charts can be overwhelming or confusing for novice traders, so this is a platform that is geared towards more advanced traders. CashApp probably sounds familiar, and you may already have this app on your phone! CashApp only allows Bitcoin investments, so it is not suitable for other cryptocurrency exchanges, but it is extremely easy to use and ideal for beginners. The downfall of CashApp is that there is a withdrawal limit; a user is only allowed to withdraw up to $2,000 worth of Bitcoin every 24 hours, but may that be a good thing if you need to monitor your spending!
Now that you’ve done your homework and laid the groundwork, you’re ready to start trading! Whether you choose one of the platforms we recommended or one from your own research, we strongly recommend learning the platform’s ins and outs before making your first trade. Each platform has its own features, fee structure, and data, so take the time to really familiarize yourself with all of the information as this will give you the best chance at success. Often CFD platforms will offer demo accounts where you will have an opportunity to practice using the platform with pretend money before making any real trades or financial commitments; as always, we recommend taking advantage of these.
Trading, whether it be with Bitcoin or anything else, can be nerve-wracking. Many people are nervous about their financial stability and maybe even more worried about entering the trading market in times like these. Here we will provide you with some trading tips that may help alleviate some of the fear and anxiety you may be feeling.
Despite its popularity and attractive opportunities, Bitcoin is a volatile market. If you are new to trading, then we do not recommend immediately inserting mass amounts of your money into trading. This could go horrible, horrible wrong if you lose everything. Instead, start small to get a feel for how trading works. Take time to learn about the Bitcoin market and the different types of data.
When things are trending upwards, it can be exhilarating, and you may want to hold onto your position even longer to maximize your earnings; this can also end badly. We recommend that you go into the trading sphere with some sort of goal – how much would you like to earn from your investment? Once you’ve met that goal, exit the market, even if it’s on an upward trend. As I mentioned in Tip #1, Bitcoin is an extremely volatile niche of trading, and thus that upward trend could spike down at any moment. Create a plan, trust that plan, and stick with it. Don’t let the exhilaration be the demise of your earnings.
Although there are cons associated with the Buy and Hold strategy and the outright purchasing of Bitcoin, there are also benefits. This form of trading is much more passive and can circumvent the volatility of Bitcoin. Note that this type of trading does take more time as you are quite literally holding onto your Bitcoin for weeks or months in hopes of the value increasing, but it may be the smartest option for beginners and those who are anxious about trading.