How To Trade Bitcoin
Welcome to Trading Brokers step by step guide to trading bitcoin online. Here you will find an easy to understand explanation of bitcoin trading. This includes how to trade bitcoin online, what you need to trade bitcoin and how to open a trading account with a broker so that you can start trading bitcoin online today.
Maybe you have heard of bitcoin trading online or through a friend. Perhaps you are looking to trade and are curious about the different options available to you. Whether you are looking to speculate, invest or just learn more, this guide on how to trade bitcoin can help you along your journey.
What are bitcoins?
Bitcoin is a popular and highly volatile cryptocurrency (digital currency) that was invented in 2008 by an unknown person using the alias Satoshi Nakamoto and started in 2009 when its implementation was released as open-source software. Transactions are made with no middle men as Bitcoin is operated by a decentralized authority, unlike government-issued currencies.
There are no physical bitcoins in circulation, just balances that are kept on a public ledger that everyone has transparent access to, known as the blockchain ledger. Although each bitcoin transaction is recorded in the blockchain, only the wallet IDs are revealed and not the names of buyers and sellers. This makes bitcoin a popular choice for anonymous transactions.
Bitcoins are stored in a “digital wallet,” which exists either in the cloud or on a user’s computer. The wallet acts as a type of virtual bank account which allows users to send or receive bitcoins, pay for goods or save their bitcoins. Many marketplaces called “bitcoin exchanges” allow people to buy or sell bitcoins using different currencies.
Bitcoins can be traded online between individuals and businesses via digital currency wallets, email or most commonly, through the blockchain networks. Some people just buy bitcoins as an investment, hoping that they’ll go up in value.
Bitcoins are created through “mining” which uses specialized computers to solve complex math puzzles which allows them to chain together blocks of transactions, which is where Bitcoin’s famous “blockchain” comes from. The role of miners is to secure the network and to process every Bitcoin transaction. For this service, miners are rewarded with newly-created Bitcoins and transaction fees.
How does bitcoin trading work?
Bitcoin trading is when you speculate on movements in the price of bitcoin without actually owning them. This differs from the more traditional method of buying and selling bitcoins via a cryptocurrency exchange. Instead, traders can take advantage of bitcoins volatility by buying or selling bitcoins in order to try and make a profit from the price movements.
If you thought the price of bitcoin was going to rise, you may consider taking a buy (long) position. If on the other hand, you thought that the price of bitcoin may decrease in value, you may think about taking a sell (short) position. The difference in the price of bitcoin from when you enter and exit the trade, is your realised profit or loss excluding any broker fees.
For example, if you purchased bitcoin and the price increased, you would make a profit on the difference in price minus any fees. However, if the price of bitcoin fell, you would make a loss and still incur fees on top. This type of price speculation is known as contract for difference (CFD) trading.
Where to trade bitcoin?
Many online brokers provide CFD bitcoin trading. You can see a selection of our best brokers below with whom you can open a trading account to buy and sell bitcoins online.
ASIC, BVI, CBI, FFAJ, JFSA, FSCA, IIROC, ADGM FRSA
Min $100 Deposit
2006
1:400
FCA, CFTC, NFA, BaFin, FINMA, ASIC, FMA, MAS, FSA, FSCA, DFSA, JFSA, METI, MAFF
Min $250 Deposit
1974
1:200
ASIC, FCA, DFSA, SCB, CySEC, BaFin, CMA
Min $200 Deposit
2010
1:30
ASIC, CySEC, IFSC, DFSA
Min $5 Deposit
2009
1:888
What moves bitcoin prices?
In order to try and speculate on the direction of bitcoin prices, it is important to be aware of the various factors that can move them. Below are a few of the most important things to consider if you are looking to buy or sell bitcoins:
- Bitcoin supply: There is a 21 million cap on the existing bitcoin supply which could be exhausted by the year 2140. Although this may seem like a long time away, the fact that there is a limited supply means that the price of bitcoin could potentially see an increase if the demand rises significantly in the coming years
- Negative press: Bitcoin sometime makes the news for the wrong reasons. Due to its anonymity, there have been cases of hacking and stolen bitcoins. Any negative news which concerns bitcoin can have a negative effect on the market price of the cryptocurrency.
- Integration: Due to the infancy and complex nature of bitcoin, it is not integrated everywhere. If it becomes more integrated over the years, the demand for bitcoins may rise which can have a positive effect on its price.
- Key events: There are specific events that can also impact the price of bitcoins. This includes any regulation changes, breaches of security and economic bitcoin announcements. If there was a way to speed up the mining of bitcoins, this could also push the prices up.
Why trade bitcoin?
Whilst one of the main reasons to trade bitcoin online can be the convenience of speculating on price without actually having to physical own the coins, there are also some other benefits to trading bitcoins which includes the following:
- Volatility: The volatility of bitcoin means that there can be rapid price fluctuations which present ample trading opportunities on a daily basis. However, it is worth considering that this volatility can also lead to greater risk of loss due to its unpredictable nature. That is why it is important to have done your research and developed a risk management strategy.
- Trading hours: The cryptocurrency market is usually available to trade 24 hours a day, seven days a week due to the fact that there is no centralised governance of the market.
- Trade long or short: When you trade bitcoin CFDs, you are able to go long (buy) or short (sell) in order to try and take advantage of markets that are falling in price, as well as rising.
- Leverage: Bitcoin CFDs are leveraged products which enable trades to take a larger position size than their account would have been able to without leverage. For example, if you had an account balance of $1,000 and 1:3 leverage, you could take a $3,000 position size. Whilst this may sound attractive, leverage is a double edge sword which also significantly increases risks and potential loss. Thus, it is imperative to have a clear understanding of what leverage is before trading bitcoins online.
How to trade bitcoin online?
If you have taken the time to read through the above, you should hopefully have an understanding of how to trade bitcoin. Here is a summary of the key steps:
1. Decide if bitcoin trading is for you
Trading bitcoin online carries an element of risk and can take more time than other forms of investing. You will need to research bitcoin, manage your bitcoin positions, follow cryptocurrency news and decide how to react to it. It is important to understand the risks and dedication that comes with trading bitcoin online.
2. Educate yourself
Before trading bitcoin, it is imperative to learn as much as possible about investing and cryptocurrencies. Any mistake could prove to be costly. There is an abundance of free educational materials provided by many online bitcoin brokers that can help you to improve your trading skills and knowledge.
Most bitcoin brokerages will also provide a free demo trading account so that you can practice trading bitcoin online with virtual funds in order to familiarise yourself with the trading platforms and practice your trading strategies until you feel confident enough to open a real trading account.
3. Choose a bitcoin broker
In order to trade bitcoin online, you will need a broker account and trading platform to execute your trade positions through to the market. When choosing a broker, there are a few important things to consider such as regulation, commission fees, platforms, tools, education, funding options and customer support.
If you do not have the time to research brokers, you can see a list of our best brokers that we have already prepared to help traders. If you would like to know more, you can also view our detailed guide on how to choose a trading broker.
4. Research bitcoin
If you have made it this far then you may be ready to start trading bitcoin online! The next step is to research bitcoin by reading news and reports. The best brokers should have this information conveniently displayed for you within their bitcoin trading platform.
5. Have a bitcoin trading plan
Some of the most important factors that can help determine bitcoin trading performance can be the trading plan and discipline. It is important to have a solid trading plan personalised to your own needs that includes the money management and trading strategy that you will use. Most experts and professional bitcoin traders would try to not let negative emotions such as fear, anger and greed affect their trading strategy.
6. Buy and sell bitcoins
Once you are ready to trade bitcoins online, you can analyse the market to help decide if and when you will place your trades. After placing a bitcoin trade, you will need to keep track of how it performs and manage it according to your trading plan. Some investors will keep hold of bitcoins for the long-term, whereas traders may buy and sell bitcoins on a daily basis.
Is bitcoin trading right for me?
Bitcoin trading has become a popular choice for active investors who would like to trade one of the most popular cryptocurrencies. It can be a way to diversify from more traditional markets such as stocks and commodities.
Bitcoin trading can be suitable for scalping, day trading and swing trading. Traders who would usually trade forex, trade stocks, trade indices, trade commodities, may look to diversify their portfolio.
However, it is important to understand the significant risks involved with trading bitcoin online, especially when using leveraged positions. Most experts would suggest trading on a demo account with virtual funds to begin with.
This can be a useful way to familiarise yourself with how to trade bitcoin and using trading platforms whilst allowing you to practice your trading strategies until you feel confident and produce consistent results. Most bitcoin brokers provide unlimited demo accounts free of charge.