Why trade Bitcoin?
Before we show you how to trade Bitcoin, it’s important
to understand why Bitcoin trading is both exciting and unique.
Bitcoin trades 24/7
Bitcoin trading is exciting because of Bitcoin’s price movements, global nature, and 24/7 trading. It’s important, however, to understand the many risks that come with trading Bitcoin. Unlike stock markets, there are no official Bitcoin exchanges. Instead, there are hundreds of exchanges around the world that operate 24/7. Because there is no official Bitcoin exchange, there is also no official Bitcoin price. This can create arbitrage opportunities, but most of the time exchanges stay within the same general price range. Bitcoin is known for its rapid and frequent price movements. Looking at this daily chart from the swisscci - swisscci crypto Currencies BPI, it’s easy to spot multiple days with swings of 5% or more.
Bitcoin is global
Bitcoin isn’t fiat currency, meaning its price isn’t directly related to the economy or policies of any single country. Throughout its history, Bitcoin’s price has reacted to a wide range of events, from China’s devaluation of the Yuan to Greek capital controls. General economic uncertainty and panic has driven some of Bitcoin’s past price increases. Some claim, for example, that Cyprus’s capital controls brought attention to Bitcoin and caused the price to rise during the 2013 bubble.
There are two techniques commonly used by day traders to increase their profits from market movements. Leverage, or margin trading, means borrowing money on a short-term basis to speculate on the price of bitcoin. The loan is paid back when you exit the position.
Tools and indicator
There are many tools to help you profit, and minimize your losses. Two you should learn about are limit orders (which execute a trade at a certain price, whether you are there or not) and stop-losses, which can be used to lock in profits when the price changes direction after moving in your favor. You will also learn to read the market by keeping track of different indicators. Technical analysis is an extremely complex discipline, but you can start to understand the underlying trends and forces that shape the market by learning about volumes, moving averages of different kinds, and different patterns that emerge in the charts.
Is a way of profiting from downward movements in price. Usually you would need to buy bitcoins to profit, selling them at a higher price and pocketing the difference. If you want to profit from the price falling, you must own bitcoins in the first place. You sell them and buy back at a lower price. This is the simplest way of shorting, but it only works if you have bitcoins in your account.
With true short selling, you effectively borrow bitcoins, sell them, and buy them back at a lower price before returning them to the lender – keeping the difference in price. This is carried out in various ways (you may or may not actually be borrowing bitcoins from the exchange or another user), but the effect is the same. You can also leverage your short sells in the same way that you would leverage a long position.
You can start day trading on any bitcoin exchange that has adequate liquidity. Smaller exchanges will have lower volumes, and therefore a larger ‘spread’ been bid (buy price) and ask (sell price). That means the price must move further before you are in profit, and trades may take longer to execute. Therefore, sign up with a large exchange where you can be sure that liquidity and speed of trading will be suitable. And, as ever, make sure the exchange is reputable. It makes no sense to make thousands of dollars (or bitcoins) day trading, only to have them disappear when the exchange is hacked or goes bankrupt through mismanagement. Bitstamp is a good place to start. It is the world’s largest bitcoin exchange and has an excellent reputation. Bitstamp is an exchange, rather than a Bitcoin trading platform.
You can buy and sell bitcoins quickly and easily, and begin to learn about the way the market tends to react. You can place orders in real time (buying and selling at the ‘spot’ price) and set limit orders, which execute when the price reaches a certain level. However, Bitstamp is not designed for advanced day trading. Other exchanges and platforms have more advanced tools that allow you to use more sophisticated trading techniques and amplify your gains – and your losses. Use them with caution!