What is bitcoin trading?
Like trading in general, bitcoin trading is also about predicting price movements, except this time we take the cryptocurrency into consideration. Typically, this is done by taking complete ownership of a Bitcoin for which a trader buys a bitcoin through an exchange. However, given that it is possible to cash on Bitcoin’s volatility using derivatives, cryptocurrency traders are increasingly moving towards them. Read more about Multibank.io.
Financial derivatives such as CFDs are also a good and secure way of investing in Bitcoin. It is especially helpful when you want to speculate and earn profit from the volatility of the crypto market without actually burning a hole in your pocket by buying a token.
There are many ways with which you can start trading cryptocurrencies but the first step is to become familiar with the subject. Make sure you learn about the nuances of the market and take into account the rules around cryptocurrencies that prevail in your country.
- Learn what affects the price
To open a short position and to make the most of a market trend, try to first understand what is it that affects bitcoin’s prices:
- Supply: The price of bitcoin can see an exponential rise because the creators of this cryptocurrency ensured that there are only a finite number of these tokens. Therefore, only 21 million bitcoin tokens can be mined and at the current pace, the supplies will come to an end by 2140.
- Negative News: Any information or update regarding bitcoin’s security, value, and shelf-life can bring the bitcoin’s price down.
- Integration: If bitcoin is successfully accepted as a form of payment to the point that it is integrated into banking systems, it will cause a sharp rise in its prices.
- Key events: Any major movement like a change in regulation, a security breach, or an announcement that can cause a stir in the crypto market can affect prices. Agreements about speeding up the network that users may initiate can also lead to a bitcoin price rise.
- Pick a trading style and strategize
- Day trading
- Trend trading
- Buy and hold
- Choose how you want to trade/invest in bitcoin
- Trading bitcoin derivatives
As discussed before, you can choose to speculate on bitcoin’s prices through CFDs. This means that you would not directly own a bitcoin but still be able to take long and short trading positions.
- Buying bitcoin through an exchange
You can also choose to buy bitcoins through an exchange. You would have to open a digital wallet to store the bitcoin and hold your trading position only to sell at a point when you think the price will rise.
- Decide whether to go long or short
The good part about using derivatives to trade is that you can choose to go long and short on the basis of the market sentiment. Simply put, going long means you will hold on to the position because you expect the price to rise, and going short indicates a fall in the prices.
- Set your stops and limits
The two key risk management tools that you should be aware of are stops and limits. It is very important to have proper risk management strategies in place before entering a trade. This will help you understand how much money you can risk if the trade doesn’t move in your favour.
- Open and monitor your trade
In order to start trading bitcoin, you will have to buy or sell an asset/position if you think the price will rise or fall respectively. To be able to do this successfully, you will have to follow the market consistently and see if it is moving as per your predictions.
You can take the help of the technical indicators on your online trading platform to understand this better and track aspects like market volatility.
- Close your position and cut your losses
How do you know when to close a position? You can do this at a point when you want to earn profit or when you want to curb the loss you’ve incurred. Note that while profits will be added to your trading account balance, the losses will be deducted from your account.
Steps to start trading bitcoin
Sign up for a cryptocurrency exchange
First and foremost, you should have an account with a crypto exchange. You would be required to submit certain personal information like your residential address, date of birth if you’re in the US then your Social Security number, your email address, and other things that may be covered under the Know Your Customer KYC policy.
Fund your account
After you’ve created your account, the next step is to add funds. While most crypto exchanges accept bank deposits through debit cards and wire transfers, you would have to link your bank account to your trading account.
Pick crypto to invest in
Bitcoin and Ether are two of the major cryptocurrencies in the market which also enjoy a large market share. These are also the most preferred digital currencies among traders and it is also much easier to follow technical indicators as these cryptos have much more predictable movement trends.
You may discover that a lot of investors put their money in altcoins. These may not be as big as Bitcoin or Ether but they’re relatively more affordable but also equally riskier. Also, read about the best leverage crypto exchange | multibank
If you want to be on the safer side, you can choose an automatic crypto-trading software. These rely on bots to make the most profitable bets for your investment. Just like traditional trading, you can choose to be a conservative, neutral, or an aggressive trader. You may choose to hold short or long positions and even have a diverse crypto portfolio.
Store your cryptocurrency
Your funds should be available on the exchange if you want to access them easily while trading bitcoin. Most importantly, you should have a hot or a cold Bitcoin wallet if you want to hold onto your crypto asset. While both of these wallets are secure, hot wallets are always connected to the end while cold wallets save your cryptos offline and are thus, much safer.