Bitcoin trading is a very popular process of buying or selling Bitcoin (so as many other cryptocurrencies) on cryptocurrency exchanges like Binance, Kraken, BitMEX, etc. or using this or that Bitcoin trading app.
Cryptocurrency remains a hot topic for quite a while - this market is relatively new and is extremely fragmented. That is why both experts and beginners can gain legal profits from good Bitcoin trading strategy.
Of course, if you are a beginner, your path will be a bit more complicated. First, you need to remember that there is no "no-risk" Bitcoin trading strategy. Crypto trading can bring profits but can bring losses as well, especially during the bear market (if you don't short Bitcoin).
This article is going to show you the basic but effective strategies - not just "buy when it's low, sell when it's high". If you like any of them, you will better take your time to get more info before starting.
With that being said, we invite you to an exciting journey to the world of trading!
What Is Bitcoin Trading?
As you may understand, the term "Bitcoin trading" consists of many different strategies: futures trading, Bitcoin shorting, spot trading, margin trading, etc., so it is impossible to give the short answer to the question: "How does Bitcoin trading work?".
The first question you may have is:
Which one is the most profitable?
Don't be in a hurry because only scammers can tell you it is possible to earn $10,000 for 1 week by investing only $100. Of course, trades with leverages are the most profitable but they require a lot of experience.
Today we are going to show you some basic strategies in which leverages are not required, and this is good for you to practice at least.
The next question, I suppose, can be:
Why should I invest money, spend a lot of time learning if I still have a chance to lose?
As I told you before, there are no safe Bitcoin trading strategies, so you need to be ready to lose. With what was said, if you have enough experience and understand how the market works, your losses are going to be minimal.
Also, trading has some valuable advantages:
1) You can buy and trade Bitcoin any time you want: when having insomnia or dining on a Balinese beach;
2) Bitcoin allows traders to register and operate without long and complicated registration processes, in most cases, you will only need to verify your email;
3) Bitcoin had its ups and downs with dramatic changes in price, but it never equaled zero.
4) You can find a good Bitcoin trading app to minimize your efforts.
Let’s discuss the trading peculiarities and the best way to trade Bitcoin.
Importance and Stability of Bitcoin
You may think that Bitcoin is good only for trading. But I need to tell you that Bitcoin and other popular cryptos like Ethereum or Litecoin are already used as virtual methods of payment. In many developed countries, it is possible to pay for goods and services using them. And experts expect Bitcoin to be one of the main payment methods soon.
By the way, not every trader gets profit from trading only. A lot of powerful investors just hold money in Bitcoin or Ethereum for 2 or more years, and then withdraw it when the price is higher.
And this point leads us to the fact that Bitcoin is very unstable. When BTC is fluctuating, all the altcoins change their trends as well. It is impossible for cryptos to be stable because they react on all the withdrawals and deposits.
When whales withdraw money in Bitcoin, you can see the huge devalue of it and vice versa. And I can expect these fluctuations are going to appear more often in the future because there are more and more investors on the market.
It doesn't mean they are going to be big but you may see them more often.
So yes, this asset got used to extreme fluctuations, and Bitcoin price often rises and falls by tens of percent in a blink of an eye.
When the market of cryptocurrency was still shaping, the Bitcoin value could increase by 100% or even more! The main reason for such Bitcoin fluctuations was that the market lacked liquidity due to a low number of buyers and sellers.
So now you will hardly witness Bitcoin’s fluctuation by 100% a day. The high volatility of Bitcoin allows traders to make profits, while the high growth potential of trading Bitcoin helps investors to become more prosperous.
We bet you were waiting impatiently for this section!
Who needs boring theory, when there are so many Bitcoin trading tips waiting for you?
Unfortunately, you should always start with fundamental knowledge if you want to leave a trace on the market and not just to go broke over the night, or you can choose the legit Bitcoin trading app or Bitcoin trading bot that will do everything according to your settings.
First of all, all the strategies for trading can be split into two directions: speculative and investment ones.
Usually, professional market players divide their deposit into two parts: one is invested in the long run, while the second is used for speculations.
We have already determined that it is almost impossible to imagine a situation when the Bitcoin prices will reach zero. That’s why the most profitable strategy would be buying Bitcoin on a bear market. Distinguishing features of this strategy are time and a net capital without leverage. This means that for successful trading Bitcoin, you just need to buy it when the price falls down and not to use borrowed money.
If you are an investor, time plays in your favor.
Be patient and wait till the price goes up, and you can sell Bitcoin, making profits.
Here are a few tips for people who want to trade on their own without any Bitcoin trading app.
1. It is rather simple to detect the best purchase price: take the peak price of Bitcoin and divide it into two.
For example, the maximum Bitcoin price on the Binance exchange was $19,800, so after splitting, you will get $9,900. Considering that Bitcoin is an extremely volatile asset, it is very likely to rise and fall, and to beat the historical maximum. Waiting for this to happen, we can easily purchase Bitcoin if its price falls lower than $9,900. This is a trading approach when your risks will be minimal.
Moreover, you can make purchases not on all of your funds but in parts: to break the entrance into three or five parts with a max gap of $1000.
Let’s assume that the price dropped to $9,000, and you have bought the first part. The price continued to fall and reached $8,000. You purchased it using the second part. The third part you used to buy the asset for $5,000.
If the investments were divided equally, your average position would be $7,500. Once the price exceeds $9,900, you can start selling. But also in parts.
2. There is another advanced trading approach: when you buy Bitcoin on a fall. To use this strategy, you’ll need to purchase assets using capital that would grow exponentially. Thus you will significantly improve the average price of opening an investment position.
However, you must always calculate the lowest and the highest price of entrance.
Then you only need to detect the entrance price exponentially. This calculation form can be found on the Internet (Go on, Google it).
Let us remind you: these trading Bitcoin strategies should be performed without any borrowed capital and leverages.
Remember that you fixate losses only when you sell assets. If you have bought Bitcoin, all you need is some time to wait while the price will grow and the absence of need in the capital that you have prior invested into Bitcoin.
Sounds simple, isn’t it?
In reality, everything is even more straightforward!
Now it is the right time to introduce you to the Bitcoin futures trading.
Are you ready?
Trading on Spot or Futures Market
At the moment, Bitcoin trading can be performed both on futures and spot markets.
The last one allows you to buy Bitcoin and withdraw it on a cold or hot Bitcoin wallet.
Keep in mind that exchanges don’t guarantee the safety of asset storage, and any time you risk losing your investment capital or Bitcoin itself because even the best Bitcoin trading platform can be hacked in a blink of an eye.
But after the deal is closed, you can withdraw assets to a cold Bitcoin wallet, and you will be the only person to have physical access to it, which gives almost a 100% security guarantee apart from unpredictable situations, like losing a key or a cold wallet carrier.
If your strategy is to make profits on speculative operations, then the Bitcoin futures platform is for you. This is especially true for those countries where trading Bitcoin and other cryptocurrencies are forbidden, but it is allowed to trade derivatives on official exchanges.
CME, the leading marketplace for trading derivatives, allows Bitcoin futures trading without fear of being caught. But it has its peculiarities concerning capital. On a Bitcoin futures platform, you need to have funds for the trade, because you buy not the asset but a contract for purchasing this asset in the future. Some Bitcoin exchanges have a minimal quantity of Bitcoin in a single contract.
As for cryptocurrency exchanges, at the moment, Bitmex OKCoin and Binance Futures offer futures trading.
But before you start trading futures, we recommend getting familiar with how exchanges operate.
For example, Bitmex exchange allows borrowed capital and trading with a margin. Leverage reaches x100, which is somewhat risky, and the inexperienced Bitcoin trader will most likely lose money in a single deal.
Today we have discussed the Bitcoin trading processes and how Bitcoin emerged, why it is so popular, and how anyone can benefit from it.
We have also introduced you to the Bitcoin futures platform and the most viable strategies, which any trader can use.
As you see, trading Bitcoin is rather straightforward and has a variety of benefits over trading other cryptocurrencies: it is unlikely to drop to zero, you can trade Bitcoin 24/7, and the registration process is quite simple.
Also, you have access to a variety of exchanges, strategies, and instruments that will make trading even more fun and simple.
To sum up, we would like to write down the main tips on trading Bitcoins for beginners you should remember if you are a newcomer in trading:
1) It is impossible to profit from every trade;
2) You should learn a lot before you start trading;
3) Don't use leverages until you are "well-armed";
4) Check the rules of every Bitcoin exchange you are going to work with.
And if you find some terms unfamiliar or want to take your skills to the next level, you can always read our guidelines and become an advanced Bitcoin trader with minimum efforts!