How To Trade Bitcoin
Bitcoin has dominated news cycles since its impressive and historic bull run. We have even seen Bitcoin being used as a safe haven during geopolitical turmoil due to the fact that it’s decentralized, not because it is as stable as gold.
Bitcoin is an exciting and relatively new currency, even if it is much more volatile than other instruments. That’s actually the reason a lot of people trade cryptocurrencies like BTC. If you’re a beginner to Bitcoin trading, this article will help you understand the following concepts:
What is Bitcoin?
Before we start with how to trade it, maybe we should look at what Bitcoin is. Bitcoin was one of the first cryptocurrencies to ever be launched, proposed by its creator Satoshi Nakamoto in 2008. The main idea was to offer an alternative to centralized (also known as FIAT) currencies that are monitored by central banks and payment processors.
The reason Bitcoin isn’t regulated is because it is a digital currency; although that may seem unorthodox the good thing is that each transition creates an entry in a publicly available digital ledger. Although the individuals involved are anonymous, the details of their transaction are the only thing logged. This also means that transactions are not reversable, which solves a problem many electronic currencies suffer from.
Another benefit is that the amount of Bitcoin is always known. FIAT currencies on the other hand can be issued by a country’s central bank as needed. This can drive the currency’s price down. Bitcoin has no such issues. The maximum amount of Bitcoin is already known; it's just a matter of when it will be fully mined. Mining is simply processing each of these transactions and securing the network. This is done through mathematical calculations and chaining together “blocks” of transactions; thus, the term blockchain.
How to Start Trading Bitcoin with easyMarkets
easyMarkets offers Bitcoin CFDs (contracts for difference), which makes trading this popular cryptocurrency more immediate and user-friendly. When you trade CFD Bitcoin you aren’t obligated to own the actual asset, i.e. you’re not stuck with it if the price moves against you. This isn’t the case when you own the actual asset – you must wait to find a buyer when you are selling.
A further benefit of trading Bitcoin CFDs is the ability to trade both upwards and downwards trends, something that isn’t possible when you own the cryptocurrency. This is why traders that prefer day trading choose CFDs.
Convenience is another reason traders use CFDs. To buy Bitcoin and store it, you need first to sign up for a cryptocurrency exchange. To find a credible and secure exchange can involve hours of research and even the most well-established exchanges can be hacked, or even worse “go under”.
You will also need a cryptocurrency wallet – and the complexity continues; there are physical cryptocurrency wallets, desktop, mobile and web. If you happen to lose your login details then you will be locked out from your wallet. Sometimes you might be able to recover your account, but if you can’t your entire account remains locked behind a password.
That isn’t something that you have to worry about when you trade Bitcoin CFDs, as most creditable brokers (and their customer support team) will ensure you have access your account. A regulated broker will also make sure that even if the company goes under, your funds and account will be safe.
To trade Bitcoin, all you have to do is sign up for an account, deposit money and start trading. Eventually you will have to fill out a few forms and verify your identity, but this process is simple and in place to ensure that your funds and personal information is safe!
|Trading Bitcoin CFDs with easyMarkets
|Buying and Selling Bitcoin from an exchange
|Sign up for a free account, with just email and a password, take a short appropriateness test and start trading!
|Research and find a creditable exchange.
|You have two weeks after that to verify your information with a simple and secure portal that allows you to upload the necessary documents.
|Go through an extensive ID verification process (if the exchange is creditable. If an exchange doesn’t ask you for this information, it may be less than secure). Most exchanges will not allow you to trade no matter how ideal market conditions are.
|Deposit a minimum amount of $25 USD.
|Deposit money into your exchange account.
|Start trading immediately. Trade both upwards and downwards price movements depending on trend.
|Wait for price to hit the level you want to purchase at. Wait to sell when it reaches the level you’d like to sell at.
|No option to “sell” if you do not own Bitcoin as the price peaks, you can only buy when the price drops, if it drops.
Factors Affecting the Bitcoin Price
Bitcoin’s price is influenced by a few factors:
The price of Bitcoin is moved by the fundamental rule of the markets; supply and demand, but beyond this Bitcoin’s price is also determined by factors such as cost of mining, government restrictions or regulation placed on, or rumored to be placed on, the cryptocurrency.
Speculative trading also moves Bitcoin's price. During Bitcoin’s unprecedented bull run, markets ran to invest in the novel instrument. This resulted in a surge in its price, closing 2017 at a whopping $20,000 per BTC. Many analysts drew parallels between Bitcoin and Tulip Mania, the historic financial bubble of the 17th century.
The cost of mining is another factor that drives Bitcoin. Mining is an energy intensive process that involves expensive hardware (computer components usually reserved for graphics processing). Today there exist colossal facilities packed to the roof with racks of these components to mine Bitcoin.
These are just a few of the factors, and some may even change in the future. One of the most fool-proof ways to manage risk when trading volatile instruments like cryptocurrencies is to be aware of changing conditions. Keep your eyes on the news and updates.
The fear of upcoming forks may also push down the price of Bitcoin. Forks happen when updates to a cryptocurrency’s protocols are proposed, usually to add more features, and a consensus is not reached within the mining community. This results in two different types of Bitcoin with different rules, being mined by different miners. They can have different values and usually have different names.
Bitcoin Trading Strategies
Many Bitcoin trading strategies are also used when trading conventional instruments, so you may be familiar with some of these.
One of the most popular forms of trading for both beginners and experienced traders, this strategy is based on anticipating and predicting short-term movements. As the name suggests, most trades open are closed by the end of the trading day.
Similar to day trading, swing trading seeks to recognize emerging trends and taking advantage of them until they slow down and eventually reverse. This usually depends on market sentiment, where sell offs or so-called buying frenzies happen.
This is best suited to advanced traders that are able to analyze and set protective limits/stop loss and react quickly to changing market conditions. Although this is called “Automated” and certain operations are indeed automated, you still need to keep your eyes on the markets, news and your trades.
After conducting analysis the trader calculates their goals, taking into consideration their risk/reward ratio. Then the trader sets entry and exit points that are automatically executed.
easyMarkets has deposits as low as $25 and you can actually use easyTrade to trade without margin requirements.
easyMarkets never charges hidden fees or commission, just spreads.
Because Bitcoin isn’t tied to one market or domicile it can be traded around the clock. easyMarkets also allows its clients to trade Bitcoin over the weekend too!
The trading symbol for Bitcoin is BTC and is traded as a USD cross. You will see it displayed as BTC/USD on easyMarkets trading platform.
As with any CFD trading there is significant risk to invested capital involved. Unlike trading Bitcoin on an exchange though, you will have access to unique risk management tools and conditions offered on easyMarkets trading platform. This includes negative balance protection, guaranteed free stop loss and the security of trading with a regulated broker.
Although they are all tradable as CFDs, they are very different instruments that are affected by different events. Make sure you are aware of these before you start trading.