As it stands at the time of writing, the value of one single Bitcoin is a bit over a staggering $4,200. With its value on a fluctuating, but steady upwards trajectory, the window of available opportunity for those looking to get involved in the purchasing, investing, and trading of Bitcoin, is closing.
With the last available Bitcoin due to be mined sometime around 2140, it is likely that its value will continue to increase as it draws closer to it becoming something of an “endangered currency”. But while the internet is buzzing with talk of this cryptocurrency and the vast fortunes to be amassed by trading it- where does that leave Bitcoin novices?
After all, not everyone is a technological, digital currency whiz kid and with so many conflicting sources out there all claiming to provide the key to financial success, it can be slightly confusing knowing how to start.
Luckily for you, we have provided you with a clear overview of the ins and outs of Bitcoin trading, and just in case you have very little prior knowledge on the topic, we have decided to start right at the beginning and then progress to the right bit which is how to trade with Bitcoin.
What Is Bitcoin
First things first, what is a Bitcoin? Bitcoin is what is known as a cryptocurrency – the first decentralised digital currency in the world, it has no central repository, no administrator, and it does not adhere to any governmental or authority regulations or control.
It was created by an unnamed, unknown programmer who works under the pseudonym of Satoshi Nakamoto. It is a peer-to-peer system where transactions take place directly, rather than through an intermediary and the transactions are approved by network nodes which are recorded on a ledger known as a blockchain.
Bitcoins are acquired originally through mining where the miner has to solve cryptographic puzzles – once received they can be spent at a range of online retailers, traded with other users, or just stored in a digital wallet for future use.
What Is Bitcoin Trading
Bitcoin trading is similar in concept to Forex trading. Instead, you trade Bitcoin for USD (or other cryptocurrencies if you wish). Bitcoin trading is a great way to get involved in the world of cryptocurrencies, without having to mine or invest in mining software.
Trading in Bitcoin can be very profitable for both beginners and professionals as the market is still in its infancy and there are huge spreads available with both arbitrage and margin trading widely popular. While Bitcoin itself is prone to bubbles and volatility, this if anything improves the popularity of trading it and draws more traders into the mix.
As Bitcoin is an international currency, it is easy to send anywhere, and that makes the trading of it, extremely simple.
When it comes to knowing how to trade it, luckily there are lots of sites out there that will get you going- some of which we will discuss a bit later on. The trader needs to open an account with an online trading platform, and depending on the platform used; you will have to provide some due diligence information such as your details and address verification. Once you are signed up, it is as simple as uploading money to your account from your card or bank account and then starting to trade.
The idea is that you buy Bitcoins in exchange for your currency. E.g. imagine you have uploaded $1000 to your trading account, you would then submit an order for purchasing 0.5 Bitcoins at $999 per Bitcoin. If the going rate is $1100 per Bitcoin, your purchase will not be instant; reason being is that if your order is lower than the current price, you will only own the bitcoin should the prices fall.
This is what is known as a limit order. You can check your trader’s order book for your trading pair to see the lowest sell order and the highest buy offer- checking these before you start trading will help you make the right decisions.
There is also what is known as a market order. In this case, you would submit a buy order at the price of the lowest sell order. If you are then selling Bitcoins, a market order will sell the Bitcoins for the highest price available, based on the current buy order book price.
While this might sound like Greek to a novice, it really isn’t that complicated and getting started is simple if you choose the right provider.
One of the most attractive things about trading with Bitcoin is the ability to trade using something called leverage. Leverage gives traders the chance to trade with more substantial amounts of currency, despite having a small capital.
In this way, it is very similar to Forex trading, which provides users with the same option. An example of this would be a 50:1 leverage provides the trader with the opportunity to place trades 50 times more than the money they actually have. Leverage is great in that it offers high returns on investment, but remember that it can be the same should you lose as well and can actually put your account into a negative balance.
If you are a beginner, we would advise that while you should try leveraged trading, it is wise to place minimally leveraged trades to avoid getting yourself into a sticky situation!
Bitcoin Trading Rules
When it comes to trading with Bitcoin, there are a few rules that you should abide by:
Have a Strategy
When we talk about the plan in the context of Bitcoin, we talk about a set of rules that decide when to enter or exit the market, as well as some general money management guidelines. It is essential to have and stick to the plan as disregarding it is considered as lousy trading, even if you are in profit, as it could interfere with the ultimate result of the strategy. The idea is to remain rational and stick to a pre-thought-out plan to avoid letting feelings interfere or take control.
Do Not Overinvest
Basically, you should not invest anything that you cannot afford to lose. Every kind of trading and investment carries an element of risk, and one should bear this in mind at all times. Only invest money and capital that you are prepared to miss, should it go wrong- in other words, don’t bet your kids’ tuition money, the mortgage payment money, or the Christmas fund. It is wise also not to borrow any money and to remain directly responsible for your actions.
Use Technology Wisely
Trading in Bitcoin is very competitive, and you should use all resources available to you, to increase your advantage. Technology is an excellent source of info and real-time data on exchanges will give you the ability to analyse the market to help you make a foolproof trading strategy, as well as wise decisions. There is a world of charts and graphs out there that you can access with just a couple of clicks through your PC, mobile, or tablet.
Stay Up to Date
Knowledge is power, especially when it comes to trading and as the market is ever changing it is essential that you are prepared to invest time, energy and concentration in your pursuits. It is crucial that you research trends and events, as well as the state of the market. In such a dynamic market, staying on top of things and not dropping the ball is the key to your success.
Know When to Call It a Day
Like with gambling, chasing a big win is never going to end well. It is important to stay grounded and to know when enough is enough. Whether you are on a streak of bad luck, cannot stick to your trading plan, or are just not putting in the time and dedication required, you need to know when it is time to stop. You need to know when to stay focused and unemotional while retaining an air of professionalism.
Remember that losing is just as much a part of trading, as winning is and keeping this perspective in mind is vital. By following the tips in this article, you can get off to a good start, but remember that the road to riches never runs smoothly, and if it were that easy, everyone would be doing it. Of course, you can control an element of your destiny through a proper strategy and planning, and by following various tips- but at the end of the day, there is still an element of the unexpected that can cause disastrous outcomes.
Bitcoin Trading Mistakes
When it comes to what are the fundamental mistakes that can be made when trading Bitcoin, we have covered some of them above. When it comes to your strategy, the key is to keep your cool, not get carried away, don’t let emotion interfere, and always, always stick to the plan.
When it comes to the more technical side of things, as mentioned, you should always do your research beforehand and make sure that you are keeping up to date with the relevant general and industry news to make sure that the decisions that you are making are the right ones. Staying abreast of current developments is the way to success and remember, if you drop the ball you could miss out on a tremendous opportunity, or end up losing money.
The last mistake that you need to avoid is making sure that you choose a reputable trading platform. There are so many out there and all claim to be the best while offering an enticing selection of special offers and incentives- but not all are created equally- so how do you separate the wheat from the chaff? Let us take a look at some of the leading platforms you can trade on to help you make a decision.
Where to Trade Bitcoin
As mentioned earlier, picking a reliable platform to trade your Bitcoin can be a little daunting. With so much choice available, choosing the right provider can be like looking for a needle in a haystack. There are, however, a few reputable services that are tried, tested and have our seal of approval. Let’s check them out.
This Hong Kong-based trading platform is the largest, and the most well known in the in industry. They have been operating since 2014, and they are responsible for over 10% of Bitcoin trading worldwide. As well as trading Bitcoin, you can also trade Ethereum, Bcash, Neo, Litecoin, OmiseGO, IOTA, Zcash, Ripple, EOS, Dash, Monero, ETP and Santiment. Bitfinex offers leveraged margin trading through its peer-to-peer funding market.
Based in the US, Kraken is one of the most prominent Bitcoin exchanges in the world and operates in Canada, the EU, Japan and the US. Regarding euro volume and liquidity, it is the world’s largest Bitcoin exchange. Kraken also provides Bitcoin pricing to the Bloomberg Terminal.
Established in London in 2013, CEX.IO offers to trade Bitcoins for fiat money such as USD, EUR, GBP, and RUB and they charge between 0% and 0.2% on commission– very low in comparison to other facilitators.
What is Leveraged Trading
As we have also mentioned above, leveraged trading is where you have the opportunity to bet with more substantial amounts than you have in the capital. Several providers offer leveraged trading services, and here we will provide a little more information about each of them:
eToro is a social trading and multi-asset brokerage that operate globally with offices in Israel, the UK, and Cyprus. Founded in 2006 in Tel Aviv, they offer to trade online, and on mobile apps, and in 2014 they started offering Bitcoin CFD to its investment instruments. With over 3 million active users, they are one of the biggest traders in the market and are an excellent choice for those looking to dabble in the world of leveraged trading.
To those that have familiarity with Forex, the chances are that you will have come across AVATrade. As one of the most reputable and recognisable names in the industry, they offer standard forex trading, leveraged trading, as well as Bitcoin and other cryptocurrencies.
The most important aspect of trading Bitcoin is its volatility. If you decide to trade with Bitcoin, you have to be prepared for more downs than ups. If you are persistent enough, you will likely stay in the game for longer and have higher chances of making a profit.
You should also familiarise yourself with the difference between investing and trading Bitcoin. The former is a long-term and slow undertaking, while the latter is a more fast-paced endeavour.
Hence, above all, keep your head fresh. There will always be news and events that shake the market and cause the price fluctuation. Bitcoin may be free from the third party control, but at the same time, it is more sensitive to investors than fiat currency.
It is also wise to start first with investing, moving slowly to trading and keeping the leveraged trading as your last asset. You would not want to start driving on the most dangerous road – the same applies to Bitcoin.
Learning how to trade with Bitcoin takes time, but once you learn all the secrets, you may become the one teaching them.
If you are an experienced trader and have some tips others may find useful, please, share in the comments below!