Trading Bitcoin for beginners
How does Bitcoin trading work, and what are the best trading strategies to make money?
This Bitcoin trading guide will explain what Bitcoin is, detail how you can start trading Bitcoin and ultimately offer a few invaluable Bitcoin trading tips.
If you have invested in any stocks or shares in recent years you might also have considered trading . There are many stories of traders riding the Bitcoin wave and making significant profits. This guide, Trading Bitcoin for beginners, could prove to be your ticket to an exciting way of extending your financial portfolio.
How do you start trading Bitcoin?
Bitcoin is the world’s leading and highest profile cryptocurrency. Developed in 2008 by an anonymous person or group known as Satoshi Nakamoto, the digital currency first become available in 2011. Back then you could buy a Bitcoin for $0.30.
If you want to learn more about how Bitcoin actually came into being and about how to buy Bitcoin, this is a good place to start.
Trading vs investing
First of all, before moving on to Bitcoin trading strategies, it is essential to understand the differences between Bitcoin trading and Bitcoin investing. Ultimately that difference is about how long a person holds on to Bitcoin. If you had bought Bitcoin in 2011 and held on to it until now, you would have seen its value rise from $0.30 to around $8,000. So that makes it a pretty good long-term investment. If you want to buy Bitcoin for investment purposes, there are online exchanges you can use to purchase the cryptocurrency, read more about that here.
Traders, however, buy Bitcoin with a view to selling, usually within a short period of time. This could be weeks, days, hours or even minutes. In fact it is possible to get a great return from Bitcoin in a very short space of time as its price is highly volatile. It can drop or rise significantly very quickly. A recent example came in late October when the Chinese President Xi Jinping made supportive comments about blockchain and the ways that Chinese companies could innovate using the technology. The price of Bitcoin subsequently shot up by over $1,000 in price in a few hours.
Another key attraction for would-be Bitcoin traders is that it is available to be traded 24 hours a day, 365 days per year. Stock markets open and close on a daily basis, but no matter where you are in the world and no matter what time it is, you can trade Bitcoin.
How does Bitcoin trading work?
There are two different ways in which an individual can trade Bitcoin - namely scalping and swing trading. Scalping is when traders constantly buy and sell currency. With Bitcoin they are attempting to maximise revenue on the smallest of movements as this will deliver them - they hope - a significant return on the day.
Clearly scalping involves sitting at a screen for most of the day, keenly watching trading prices. So, for most non-professional traders, the prefered method is swing trading. This involves trying to anticipate the movement of Bitcoin, with the individual holding on to the stock until they feel it has hit an optimum price and is about to fall. This could be days, weeks or even months after the purchase.
Knowing when to hold and when to sell involves complex psychology, which we will explore in future guides.
Where to trade Bitcoin
So, if you are up for the challenge, where should you trade? At currency.com you can trade Bitcoin as well as rival cryptocurrencies such as Ethereum and Litecoin. The process is simple. You download the app and then use fiat money to buy the Bitcoin.
The alternative method is to buy Biticon yourself and then use it to trade. You would need to exchange fiat money for Bitcoin using a crypto exchange company. The Bitcoin is then stored in a virtual wallet for which you have two keys (bespoke codes). One key is shared with other parties while the second acts as your signature and is kept private to prevent others from accessing your funds.
If you own Bitcoin already you can also use it to trade on existing markets such as the and , via Currency.com.
Bitcoin trading tips
You are now ready to trade. Do you have a plan though? In some respects Bitcoin trading is no different from trading on any other markets. You need to ask yourself lots of questions. Do you know how much money you are prepared to lose? How often do you intend to trade? How long you are prepared to trade for?
You also need to decide whether you intend to use leverage. As we mentioned earlier, one of the biggest advantages in trading Bitcoin specifically is that its price can be volatile and go up and down very quickly.
One way to increase the price difference, and potentially secure even greater profits, is through a process called leveraging. This means you are basically trading on the margin - or the difference between the opening and closing prices.
In a traditional exchange you pay the full amount of your trade, so buying 10 Bitcoins for $8,000 would cost you $80,000 for example. In a 1:100 leverage trade however, you pay one per cent of that $80,000, so just $8,000.
Should the price of Bitcoin rise by 10 per cent, you would make the same $8,000 profit in both cases. But if the price were to rise higher you could make significant returns for a limited upfront investment with leverage. Trading in this way means you can make the same profit, but at a considerably reduced cost.
The downside of leveraging is that if the price goes down it can amplify your losses too though. Leveraging is for the experienced trader only, given potential losses.
One way that you can counter this possibility is through a system known as Stop-loss. These orders enable traders to automatically offer their Bitcoin for sale if the price falls below a certain level. This can help prevent losses should Bitcoin begin to decline quickly.
Stop-loss orders allow investors to think about the price at which they would want to sell their Bitcoin in advance - eliminating rash and potentially costly decisions. Traders do not need to constantly watch market movements as they have the security of knowing that action will automatically be taken if prices dip to a point where there is cause for concern.
What impacts the price of Bitcoin?
Part of the appeal in trading Bitcoin is in identifying the factors which affect its price. Essentially, anything that helps Bitcoin on its way to becoming a global digital currency, which the potential to replace fiat currencies, will push its price up.
At the current time the biggest price movements are likely to be driven by government initiatives. For example, US approval of a Bitcoin exchange-traded fund (ETF) or more positive noises from China about cryptocurrency, would see the price go up.
Competition, on the other hand, could lead to a price drop. Say, for example, if Facebook’s Libra coin were to prove highly successful, or if the EU launched its own digital coin, there could be a negative impact on Bitcoin’s price. Then again, a competitor from either of these organisations might actually prove to be a “market validator”, pushing the price up…
These are the macro influences that impact Bitcoin trading. There are many other smaller factors and you can keep abreast of these in both the coin media and at Currency.com.
Trading Bitcoin can ultimately be a fun ride with the possibility of significant returns, especially if you utilise leveraging. It's also a risky one though as the price is so volatile.
The main requirement is to understand the Bitcoin trading process before parting with your cash. Make sure you have a trading plan and find out how psychology can improve your trading skills.
FURTHER READING: Bitcoin vs Ethereum
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