There is a lot of talk concerning cryptocurrencies, especially Bitcoin. Maybe you also wondered if you could make a profit on these cryptocurrencies, or at least if there is a way for you to save/invest some of your free money in an interesting way.
You sure could. It is possible.
In this article we will show you how to start trading Bitcoin.
What is a cryptocurrency?
First things first. Cryptocurrency is a digital form of currency. Its main advantages are transfer speed, security, low transaction costs and overall transparency.
However, cryptocurrencies can also have other functions and can represent, for example, smart contracts where the money transfer is subject to certain steps and so on. That is the reason there are so many cryptocurrencies on the market, each addressing a slightly different need. You can read more about cryptocurrencies in our article here.
What is Bitcoin?
Bitcoin is the first cryptocurrency ever. This digital currency has responded to the current needs of the modern world, providing fast financial connections across the world for low fees. Bitcoin has added security to the mix and an interesting offer for a network of so called miners – people and companies providing hardware performance for the safe operation of the Bitcoin network.
Why trade Bitcoin?
In comparison to other currencies and systems, Bitcoin offers a very sophisticated system. Otherwise it would not have become so popular. Users enjoy not only abovementioned benefits, but also the benefits of security, transparency, speed, low costs or a clear release system for new Bitcoins and thus a regulated fight against inflation.
Compared to classic currencies Bitcoin offers many guarantees and a system that simple currencies and infrastructure cannot currently offer. The potential is enormous and therefore cryptocurrencies are often the number one topic of the financial world.
What are the options for investing in Bitcoin?
In the world of trading you always have many options. The basic one is the primary decision whether to invest in an asset in its physical form (still digital for cryptocurrency) or through financial derivatives.
Let’s set an example on something more physically tangible, for example gold. You can buy gold ingots or you can speculate on the price of gold through financial derivatives (“paper gold”).
The purchase price will be the same in both cases, but you do not have to focus on physically holding an asset with a derivative (for example safe storage in your hardware wallet). You don’t even have to worry about a possible sale (with a derivative it is very quick, you can do it with a single click in the trading platform but how long and how much energy would it cost you to sell a gold brick at a good price?).
Derivative or Bitcoin?
If you are only interested in the price of Bitcoin, you can trade the CFD (derivatives) directly. Financial derivatives are directly linked to the underlying asset, in our case the Bitcoin price. In addition, they offer the possibility of leverage trading (you can multiply the size of your investment and realize times higher profits but also losses), but most importantly you can speculate on the price drop as well.
In the first stage you have to decide whether you want to use Bitcoin exchanges to transfer your fiat (usd, eur, inr,…) funds to Bitcoin (such as Coinbase), or study graphs and speculate purely on the price of Bitcoin. If the latter is the case, you will need a quality broker (they will provide you with software for entering trading orders).
Which broker to choose for trading Bitcoin?
If you had decided to speculate on the price of Bitcoin, you will need a broker – a company that allows you to submit business/trading orders for buying or selling. You will also be able to trade other cryptocurrencies, possibly other currencies, commodities and shares.
Verified brokers providing speculation on Bitcoin are:
|Broker||Bonus||Min Deposit||Payout||Review||Open Account|
| ||FREE DEMO ACCOUNT||$ 10||82 % for Standard, 90 % for VIP accounts*||Review||Trade Now!|
| ||FREE DEMO AND LOW MIN DEPOSIT||$ 10||Up to 90 %!*||Review||Trade Now!|
| ||Social trading features||$ 50||Up to 95 %*||Review||Trade Now!|
Brokers typically offer a demo account, where you can try its trading platform and enter a trading order. Then we recommend opening a real account. You can do this from the comfort of your home. Even if you deposit only a minimum amount of money into your real account, you will experience what the real loss or profit does to you mentally.
Opening a real trading account is a matter of minutes. Getting to know a trading platform takes about an hour. With a little exaggeration, it is safe to say that in an hour or so you shall have all the above mentioned set up.
How to trade Bitcoin
First of all, set up a trading account. It’s easy, as you can get from a purchase to a trading order in five steps:
- Open a trading account by filling in an online form, for example at OlympTrade or IQ Option.
- You have to verify your account by uploading certain documents (Proof of Identity: An ID card, passport or a driving license, and a Proof of Address: A bank statement for example – an online screenshot is enough).
- Deposit funds as directed, typically by bank transfer or debit/credit card (credited immediately).
- Log in to the trading platform based on the data you received.
- Find Bitcoin in the asset dropdown menu. You can now open trades (speculations) on up or down. Will the price rise or fall?
For trading Bitcoin, a business strategy is very useful. You can build this strategy on technical or fundamental analysis. If you want to monitor only the Bitcoin exchange rate, you can rely purely on technical analysis, while fundamental analysis counts with macroeconomic indicators as well.
You don’t need to worry, it’s not that difficult. Moreover, both types of analysis are explained in detail at our Learning Academy. In the fundamental analysis we have already dealt with cryptocurrencies. Technical analysis is more universal, as it is graph work and can be applied to cryptocurrencies and commodities.
In any case, you can find the documents for technical analysis, including samples of trades, in our Academy – Technical Analysis. We recommend starting from the beginning – trend lines.
How much money do I need to trade Bitcoin?
This depends on multiple factors. The first one is the type of trading.
By the type of trading
If you buy physical gold, to make a few hundred dollars within weeks or months, you would need approximately 2000-5000 dollars. If you trade CFDs, you only need 1000-2000 dollars, because you can use leverage. And for binary options, you can start off with as low as 10 dollars and still earn +- 80 % on a successful prediction.
According to the correct money management you should never risk more than 2-5 % of the current value of your account per trade. That means if you start with, let’s say 500 USD, you should only trade with around 10-25 USD risk per trade.
Bitcoin trading risks
Trading Bitcoin through a broker carries a certain risks. First of all, the potential risk is represented the broker itself. There are SCAM brokers around, so be careful. However, if you choose one of the verified brokers mentioned in the table above, the probability of you running into a scam is basically minimized to zero.
Much greater risk is Bitcoin itself. Bitcoin is a frequent topic of political debate, with central bank leaders and presidents addressing this issue. At the same time, it is held by the general public who is subject to emotions. Bitcoin’s price is thus largely influenced by volatility, and volatility is the number one risk.
High volatility may mean false activation of stop loss or generally more false trading signals. Bitcoin requires certain knowledge and experience, and that is why it may be worth considering whether if it’s not better to start with a commodity, for example, safe gold?
Is Bitcoin the right choice?
Bitcoin has a tremendous potential and presents itself as the currency of the future. Don’t let yourself believe that it has already reached its peak. But at the same time, learn from it and be careful. The high potential is regrettably redeemed by high volatility. Bitcoin does not have a solid background, so it can be easily shaken by a simple statement by pretty much any president or a central bank employee.
What do you think about Bitcoin trading? And do you trade Bitcoin directly or do you prefer another cryptocurrency or a completely different kind of instruments or even investments in general?