A continuous debate surrounds Bitcoin, particularly when it comes to whether BTC should be regarded as a currency or commodity.
There is support on both sides of this debate, and it is based on BTC’s inherent characteristics. Many people, actually, think that Bitcoin should be considered both currency and commodity because of the way in which it operates within the trading ecosystem.
Definitions aside, thanks to the continuous variation in price, Bitcoin investors can make a sizable profit by trading this cryptocurrency, be it in a speculative, short-term pattern or a long-term investment.
What is Bitcoin trading?
There are two general types of traders in the BTC market. There is ‘long-term’ and ‘short-term’ traders. Each group is classified depending on how long the trader wants to hold onto their position.
Typically, long-term traders study price trends over a longer period of time and then make their decision on whether to buy or hold Bitcoin over extended periods of time as well, all with the hope of profiting at a price higher than it was at their point of entry. Because Bitcoin is still currently in a developmental stage, traders and experts suggest that this is now a good time to buy.
Note that this buying suggestion bases itself on the assumption that, as demand for Bitcoin and its technology increase, there will be more of a demand for the cryptocurrency itself. With this increased demand, its value will go up. There have been examples of this with the upswing in BTC price, which coincided with an increase in its trading volume and market capitalization.
Short-term traders, by contrast, usually analyze the intra-day behavior of the price of Bitcoin. They seek to make a profit from the ups and downs of BTC price. Short-term traders thrive when there is market volatility, a characteristic of Bitcoin currently.
The early-stage swings in Bitcoin’s price were so wide because every little event had a very noticeable impact on the cryptocurrency’s price. When more traders begin to work with the cryptocurrency and Bitcoin stabilised, the price’s volatility decreased. Due to the drop in volatility, experts believe that now is a good time to trade the cryptocurrency.
If you play your cards right, you’ll make a profit trading BTC. The market movement pattern determines a lot about the profit, as Bitcoin’s value dramatically increases and decreases daily. Its value can change whole dollar amounts, and, if you misjudge this phenomenon, you can incur a lot of risks.
- Through companies like Plus500, Avatrade, and Markets.com, you can trade Bitcoin CFDs and take advantage of the volatility without actually having to own the currency.
- This trading is risky, however, so it is best to start out with a demo account mode until you feel comfortable enough that you can generate consistent revenue.
- To make good trades, you need to learn how to evaluate the market. Gauging the market requires time, experience, and dedication.
- Always use Limit Orders instead of buying Bitcoin at Instant/Market. Limit Orders inform the platform to fill the order if the Bitcoin is over a certain price. If you want to buy at the current price, you can look it up and use that as your limit. These manoeuvres will protect you from having your order filled in the middle of an unforeseen price swing that can lead to you losing money.
- Set up Stop Orders immediately after you create Limit Orders. Stop Orders tell the trading platform to sell your Bitcoins automatically if their price falls below a certain amount. A common sales price is 3% below the price at which you bought Bitcoin, which means that once BTC drops below this, the order will automatically close itself to protect you from catastrophic price swings. This way, you can minimize losses.
Trading Bitcoin – Getting Started with CFDs (Contracts For Differences)
Bitcoin CFDs allow you to trade Bitcoin without owning Bitcoin. Bitcoin CFDs were generated to give traders exposure to Bitcoin without the need for ownership.
Contracts For Differences, also known as “CFDs,” represent a contract between trader and exchange. CFDs declare that the difference between the price on entry and the price on exit will be a trader’s profit or loss. Basically, CFDs are an agreement held between two parties that simulate an actual asset.
Benefits of Contracts For Differences
CFDs have a lot of flexibility, meaning that they let traders go long (betting on a price increase) or short (betting on a
decrease). When traders use CFDs for trading Bitcoin, they can enter trades any day, anytime, and likewise close them whenever they want.
Another advantage is the low fees when compared to other trading methods. Although, these fees are slightly above those of exchanges like Kraken and Bitstamp, which help with the direct buying and selling of bitcoins.
For example, in addition to interest on daily open positions, Plus500’s fees are derived from the spread, which is known as the difference between buy and sale prices of securities or assets. This fee derivation means that Plus500 clients pay a little bit more than the current Bitcoin spot price to buy a contract and then receive a little below the current value when they sell.
Drawbacks of Contracts For Differences
While CFDs are suitable for experienced traders, they are not an ideal choice for long-term holders. Maintaining an open trade by using CFDs is costly. Sometimes, this expense is called a Premium. This Premium consumes 0.1% of your position each day. Because a CFD’s leverage is enabled with a loan made from exchange to trader, interest is charged for the arrangement’s duration. By contrast, Bitcoins you own can be held at no cost in a digital wallet for however long of a time.
The dreaded “margin call” is another disadvantage of CFDs. Exchanges need to protect themselves against the unexpected, including drastic market moves (also known colloquially as black swan events) that send a client’s balance far into the negative. When there is high leverage, the markets are volatile. The pace of trading is frantic that negative balances are a huge risk.
Experiment Without Risk Using CFDs
Plus500 and other Bitcoin CFD brokers such as Markets.com and Avatrade, Markets.com provide a practice trading program. The demo program mimics the regular trading interface, even featuring real-time Bitcoin prices and CFD workings. Your account is automatically filled with simulated money. You can practice with the demo trading platform for as long as you require before engaging in real-money trading.
Hopefully, this beginner’s guide to trading Bitcoin has been helpful. For more information, see our other crypto articles discussing top brokers and the workings of the market.
Risk Warning: Users should be aware that all investment markets carry inherent risks, and past performance does not assure future results. Trading of any kind is a high-risk activity, and you could lose more than you initially deposited. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 73-89% of retail investor accounts lose money when trading CFDs. Please be sure you thoroughly understand the risks involved and do not invest money you cannot afford to lose. Your capital is at risk. Advertiser Disclosure: TopBrokers.Trade is an independent professional comparison site funded by referral fees. The compensation TopBrokers.Trade receives is derived from the companies and advertisements featured on the site. Due to this compensation, we can provide our users with a free comparison tool. Unfortunately we are unable to list every broker or exchange available, however, we do our best to review as many as possible.