Do you want to learn how to trade bitcoin? Or you are trading and will like to get a good refresher on what Bitcoin trading entails? This is the right article for you.
In this post, we will walk through the basics of bitcoin trading, the trading strategies there are, and the avenues through which anyone can get to trade the first-ever digital currency.
Ride on along, and let us diffuse this together!
What is bitcoin trading?
Bitcoin trading is the activity involving speculations on the price of the cryptocurrency to make a profit. Trading Bitcoins is an economic activity that is similar in many respect to the trading of any type of commodity at all. In commerce, we buy an item at a low price, to sell it at a higher price at a later date. The appreciation in the price movements of these items culminates in profits that the traders go home with.
Bitcoin (BTC) trading is similar. Since the digital currency was created and introduced by Satoshi Nakamoto in 2009, attempts have been made to develop an economy around it. This economy is what has translated into Bitcoin trading. The future of bitcoin is bright, so let’s dive deep into it.
How does bitcoin trading work?
While I mentioned earlier that Bitcoin trading is similar to the trading of other economic items, the cryptocurrency has its inherent uniqueness brought about by virtue of its nature. Bitcoin exhibits extreme volatility, such that the price can move by multiple percentages both in the uptrend and downtrend directions within minutes or days.
It is thus essential to understand how BTC trading works in practice, in order to profitably venture into the game.
Most common methods of trading bitcoin
To make money trading Bitcoins, there are two basic ways: one involves buying the digital asset on a cryptocurrency exchange or a trading platform with hopes of it growing in valuation and be resold later. This model is what is mostly practices by retail investors or those who are not professionals in trading Bitcoins.
The second option involves speculating on the price of Bitcoin through Contract for Difference (CFD). In this method, you open an account with a CFD brokerage or trading account and you will not assume ownership of any real Bitcoin. These two methods are one of many means to trade Bitcoin today and have grown to be the most popular. More overview on these two is outlined below;
Bitcoin exchanges are dedicated trading platforms through which registered users can buy Bitcoin, Ethereum (ETH), Litecoin (LTC), or any other altcoin. Users can use a credit card domiciled with fiat currencies including the US Dollar (USD) and the British Pound (GBP) to buy the cryptocurrency. Before anyone can start trading on an exchange, users must open an account to secure a wallet for the different assets supported, including Bitcoin. This may come following the submissions of key details for Know-Your-Customer requirements.
While there are different kinds of crypto exchanges, the more mainstream ones are the centralized exchanges with notable names including Binance, Gemini, Coinbase, and Kraken amongst others. Usually, cryptocurrency exchanges have features that traditional markets have, albeit, with fewer regulatory permits. Through these trading platforms, buying bitcoin can be done by placing buy such order types as limit orders, or market orders. Selling out Bitcoins can also be done anytime the trader feels the need to exit a particular position.
Trading on crypto exchanges has evolved in the past years, with outfits now brandishing better liquidity to fill orders promptly. However, the markets have not yet gained the broad regulatory backing to match with more traditional marketplaces. This serves as a disadvantage as some features may be lacking.
There have been issues of hacking associated with the early bitcoin exchanges, and while this threat still persists, more security provisions are being implemented by these platforms. To forestall account ownership fraud, two-factor authentication is now being implemented and required to gain access to trading platforms, either on the web or mobile app.
Bitcoin contracts for difference (CFDs)
Bitcoin contracts for difference is a financial derivatives product that is based on defined leverage. These products are available globally, have more regulatory backing, and limit the risks of engagements on mainstream crypto exchanges to a large extent. Some of the benefits are visible as users are not required to take ownership of Bitcoin, and as such, not predisposed to the underlying security risks associated with holding them.
As a financial product, Bitcoin-based CFDs are based on the differences between the entry and closing prices of an asset. If the closing trade price is higher than the opening price, then the seller will pay the buyer the difference, and that will be the buyer’s profit. The reverse is also the case when the current asset price is lower at the exit price than the value at the contract’s opening, then the seller, rather than the buyer, will benefit from the difference.
As pointed out, while CFDs have their advantages, they have some jurisdictions in which they are not permitted. The Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) prohibit US residents and citizens from opening CFD accounts on domestic exchanges or foreign platforms. This is because these products are often not administered through known and regulated exchanges.
Nonetheless, users are at liberty to choose which option will serve their needs the most. Exchanges and CFD platforms are numerous, and users must choose amongst the available options. Factors to consider in pitching tents to anyone including but are not limited to the transaction fee structure, availability of crypto trading resources, and guides, as well as customer support.
Where to trade bitcoin
A crucial question new traders ask is where they can get to trade their bitcoin. As mentioned earlier, cryptocurrency exchanges are popular amongst the majority of retail traders, while those with more appetite for risk choosing the CFD options. There are dedicated platforms where these can take place, as highlighted.
Trading platforms typically make use of dedicated websites with robust algorithms for matching orders. Trading apps are often brandished by exchanges and outfits involved in the buying and selling of crypto, and they are handy mobile interfaces where trading can occur. Both trading platforms and apps have an inbuilt digital wallet
Bitcoin trading platforms
These are dedicated outfits where the buying and selling of bitcoin can be done. Upon successful registration, anyone can buy and sell bitcoins through any of the already named exchanges such as Binance and Coinbase.
Bitcoin trading apps
Bitcoin trading apps can be downloaded for Android (Google Play Store) or iOS (Apple Store) devices. To trade cryptocurrencies, such as Bitcoin, you need to add FIAT funds first. Most trading apps offer various payment methods, such as bank account wire transfer, debit card, or credit card payment.
These channels involve payment apps from major financial services firms including Paypal, Robinhood, and other related brokerage account providers. They are a miniature version of trading interfaces that simplifies the buying and selling of digital assets.
The best and most trusted Bitcoin trading apps today are:
- Binance – Overall the most trusted
- Coinbase – A very popular and easy to use wallet app
- Huobi – A very popular app in Asia
- Kraken – A crypto exchange app for everyone
- Coinmama – The easiest App for beginner’s – open an account here
Non-native cryptocurrency trading platforms such as Paypal, Robinhood, eToro, and others are also beginning to offer a form of Bitcoin trading app support. Users in non-restricted jurisdictions can take advantage of these trading apps to gain exposure to Bitcoin, Ethereum, Bitcoin Cash, and other cryptocurrencies.
How to trade bitcoin for profit strategically
Venturing out to buy and sell bitcoin for profit must be preceded by developing a working strategy. Bitcoin is unlike the majority of tradable assets due to its volatility and trading bitcoin for profit requires several skills that must be condensed into one adopted strategy. Without a trading strategy in place, Bitcoin traders will be gambling, and perhaps be unable to exhibit an effective risk management principle.
While the best way to trade bitcoin involves choosing one unique strategy, the more advanced traders may combine one or more strategies, provided they can stick to the principles. In this section, we will look at some of the common Bitcoin trading strategies.
Top 5 bitcoin trading strategies used by investors
Bitcoin day trading
In day trading, a trader opens a buy position and closes that position within a day, in order to mitigate against the risks of undue market fluctuations overnight. Day trading can be done on either a trading exchange or on a CFD platform and it essentially entails betting on the price movements of Bitcoin.
Day trading is ideal for investors who are looking for a full-time and active engagement in trading bitcoin. Learning how to day trade bitcoin requires expertise that has a steep curve to be acquired, and traders may need to opt-in for specialized training once the decision to go on this path has been established. In day trading, occasional chart analysis is necessary, as well as real-time decision-making through the help of technical indicators.
Swing trading is a strategy that involves speculating on observable trends in the Bitcoin or broader crypto market. These trends could either be bullish, surging upward or bearish, connoting a downward movement. In adopting this strategy, traders hold onto their positions until the trend attains its peak and almost starts experiencing a reversal.
Success in Swing trading is achieved through patience, as a particular position can be held onto for weeks, and sometimes months. Different market fundamentals can spark or impact a trend either positively or negatively. For instance, earlier in the first quarter of 2021, electric automaker, Tesla Inc invested in Bitcoin as a store of value, scooping up as much as $1.5 billion worth of the digital asset.
The price of Bitcoin responded to this news and surged to hit a new All-Time High (ATH) of $44,801 according to a Coindesk report at the time. While this is largely from a bullish angle, other negative news, such as the banning of Bitcoin and crypto by Chinese authorities can also stir a downtrend.
Unlike day trading, in swing trading, charts are relevant in deciphering the starts/end of a cycle, however, it does not require as much focused check-up as the former. Nonetheless, this does not imply that it has fewer risks, in fact, swing trading comes with more risk as positions are opened for a longer period of time.
Hedging trading bitcoin
Hedge trading involves the opening of a different position from the trade you currently have on. For instance, a trader with Bitcoin assets could hedge his position if he believes certain fundamental news can drag the price of the asset down. Hedging is done using CFDs and through the platform’s offerings these services, a trader who fears a market dip can open a short position, while those speculating on price drops can open a long position when they feel the prices will grow per current market moves.
Hedging is used to minimize losses, and when properly harnessed, can help a trader cut back on losses, in prices though, as CFDs do not deal with the real asset underlying.
In scalp trading, traders bet on and take advantage of short movements in the prices of Bitcoin which can span a few minutes or hours. It is like a shorter form of day trading in which positions are opened and closed within a relatively short period of time. Scalp trading comes with a high level of risks and must be traded with certainty, brought about by the fusion of both fundamental and technical analysis.
It is vital to have a clear exit strategy when scalping bitcoin as the volatility of the asset can liquidate a position irrespective of the directions at any time. It is encouraged to do scalp trading with small capital which can be spread across multiple trades. While this strategy poses its clear risks, the spread in the trader’s capital can help minimize huge losses per time.
HODL is one of the popular terms in crypto terminology that implies Hold On for Dear Life. Originally, the term is a misspelled version of the word HOLD and has since become a terminology in the space. Hodling is the long-term position taking on Bitcoin or any asset invested in. When you purchase Bitcoins with the mindset of keeping them for months and years, you can be said to be HODLing.
Hodling has no defined timeline, however, on-chain data recognizes long-term holds as the digital assets held for more than a year. HODLing protects investors from short and erratic movements in the price of Bitcoin and gives held assets enough room to resist fluctuating market trends to attain stability. While HODLing does not typically require a lot in terms of technical analysis, it requires a lot in terms of the safeguarding of the coins in a secured hardware wallet.
Trading bitcoins for beginners: get started the right way
There is an excitement that new or aspiring traders nurse when venturing into the world of Bitcoin and crypto trading. Many are impressed with the technology and look to the promising potentials of the profitable trading engagements, albeit, one of two open positions that go bad exposes them to a new reality.
Bitcoin trading is unlike forex, or other such markets and requires an expert to lead you in the hand from the point you start out to the point you become proficient. This is where iMi Academy can come in handy. Here at iMi, we have just the right experts that can show you how to start trading bitcoin, and while you learn bitcoin trading, you gain exposure to other assets that encompass the crypto trading ecosystem.
Interested in learning Bitcoin trading today, take the bold step and take our simplified cryptocurrency trading classes to get started.Take Cryptocurrency Trading Classes Here
Key takeaways on how to trade bitcoin
Bitcoin trading is an economic activity that involves the buying and selling of Bitcoin, as a digital tradable asset. The buying activity takes place on dedicated cryptocurrency exchanges or trading apps, with algorithms that help people take advantage of price speculations.
Trading Bitcoin can be a very profitable and productive venture if the right trading strategy and risk management are followed and applied.
Beginners can get a headstart into trading bitcoin by following guidelines and training from experts, as can be found at iMi Blockchain. Besides learning the various trading strategies, through the exposure such experts will give, traders can turn their passion into a profession and join the hoard of investors making a killing from Bitcoin trading.
If you need a hand on how to get started, you can always book an initial consultation with one of our experts.
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