A lot of interest has been focused on the world of cryptocurrency recently and Bitcoin in particular. Investors from all over the globe are trying to tap into this newly emerging market in its adolescence.
One great thing is that you no longer need to be a multimillion corporation to invest in cryptocurrency. With a phone or computer, an internet connection, and a little deposit, you can become a certified Bitcoin trader. There’s one thing left, which is a knowledge of how to trade Bitcoin. The mistake most investors make is diving in without first learning the ropes. So here is an essential guide on what it means to trade Bitcoin:
The Basics of Trading Bitcoin
Try to think of trading BTC like investing in stocks, but a lot crazier. Cryptocurrency has a reputation for being a very volatile market. This makes it so enticing to investors due to the high risk/reward possibilities. Here are the necessary steps to trading BTC:
- Open an account on a BTC trading platform like Coinbase, Gemini, Kraken, and others.
- Deposit funds into the account, this may be cryptocurrency or fiat currency depending on the exchange platform.
- Trade this cryptocurrency for a gain or loss. Use unique trading strategies to watch your investment portfolio grow.
Sounds easy, right? Well, that’s only the tip of the iceberg. There are so many other things investors need to know before journeying into Bitcoin trading.
Trading vs. Investing
Many new investors assume the terms Bitcoin trading and investment are the same activity. Though they may be similar in principle, the way they work differs significantly.
Trading is a series of short-term investments done to make a profit from the current market environment quickly. Bitcoin investments involve buying a certain amount of Bitcoin and holding on to it, hoping it will appreciate in the future before selling it for profit. However, they both have the same basic principle of buy low and sell high.
Ways of Trading Bitcoin
There are different ways to trade using Bitcoin. Here is a summary of the different ways investors trade using Bitcoin:
Trading with the actual cryptocurrency
In this situation, inverted purchase a certain amount of Bitcoin and hope to trade it for a higher price in the future. They fully own and control the decision made on their investment. The main aim here is to buy a lot of Bitcoin for a little money and sell a small Bitcoin for a lot of money.
While this sounds deceptively easy, there is a lot of technical knowledge involved in it. Investors have to master various charts, analysis techniques, market trends, and so much more.
Trading with derivatives
Derivatives are a great way to trade with Bitcoin if you do not own any Bitcoin or access to Bitcoin for specific reasons. You can trade using what is called a Contract For Difference (CFD). When you trade with a CFD, you don’t sell your coin but bet on the price of Bitcoin falling using what is called a derivative.
Whether you make a profit depends on which way the price of Bitcoin goes. A great strategy used by many investors is to hold onto your coin, hoping the price will rise, but bet the price will fall using a CFD. It is a great way to mitigate your losses because even if it doesn’t go your way, you still made some earnings.
Trading with Bitcoin-Related Securities
Trading with Bitcoin-related securities like Exchange Traded Funds (ETFs) and Exchange Traded Products (ETPs) allows investors to get rid of the technical difficulties involved with managing Bitcoin.
Things like setting up a wallet or trading or unregulated exchanges, managing cryptographic keys, or engage with blockchain technology are no longer necessary. Users trade these securities like any other stock on the stock market.
Here are the critical trading methods used by investors to make profits when trading with Bitcoin:
Day trading involves making multiple short-term trades based on the anticipated movement in the price of a particular cryptocurrency based on market speculation and analysis.
It requires an in-depth knowledge of the market, technical skill, and high capital to be carried out successfully, but can be quite profitable if done right.
Scalping is a trading style that specializes in profiting off small price changes. This for investors who want to make small, continuous profits rather than wait for one significant breakout or breakdown in the market.
It requires a trader to have a strict exit strategy because one substantial loss could eliminate the many small gains the trader worked to obtain.
Swing trading involves holding stocks for much longer than day trading or scalping. Traders predict market trends and aim to make profits by trading at the beginning or end of a trend (similar to a practice called breakthrough trading).
Important Bitcoin Trading Terms
Now you have a basic understanding of what it means to trade with Bitcoin. Next, you need to understand some of the basic terms you’ll often see when trading Bitcoin:
Trading volume means the number of overall Bitcoins that have been traded in a given timeframe. It is used by traders to determine how significant a trend is.
These are requests by investors to make trades on authorized cryptocurrency exchange platforms. These may be requests to either purchase or sell a particular crypto asset.
Here the investor makes a request through their broker to buy or sell a particular digital currency at the best available market price.
A limit order means that the investor authorized their broker to buy or sell a particular cryptocurrency only when it reaches a specific price or lowers to a certain amount.
The ask is also known as the offer price. It is how much a seller is willing to accept for a particular cryptocurrency.
A bid refers to how much a buyer is willing to pay to purchase a particular cryptocurrency.
This refers to the difference between the asking price and the bid. It is an excellent indicator of the demand and supply of that particular commodity.
Currency Conversion Fees
This is how much a trading platform charges for converting one cryptocurrency to another on their platform.
These are the fees required by the exchange platform for using their services to buy or sell a cryptocurrency.
Fund Transfer Fees
Most cryptocurrency exchanges charge a small token for any deposits or withdrawals made on their platform.
Bitcoin is an excellent investment, but only for those who are well prepared and informed. Learn as much as you can about cryptocurrency, follow the news, and discover what moves Bitcoin’s price. Remember that it takes a while to master trading, and there will always be bad days, but in time you’ll start making a tidy profit.