What is Bitcoin trading?
Bitcoin trading is just the same as any other types of trading, this includes foreign currencies (forex trading), stocks or commodities. Investors can buy and sell Bitcoin on cryptocurrency exchanges in the same way traditional investors use financial exchanges to buy and sell fiat currency.
People often use the terms trading and investing interchangeably and in fairness there is not a lot of difference. The main point to differentiate them is time frame. Investing is normally seen as something long-term, months and years, whereas trading is shorter, it can be anything from seconds to weeks.
Like trading any asset, the idea of trading bitcoin is the same, buy low sell high or sell high and buy low. When you trade you must exchange something for the bitcoin you intend to purchase. If you are trading the underlying asset, then you will need to buy the bitcoin with another coin or fiat, when you sell you will receive that coin again. The difference between your buy and sell price is how much you make (or lose).
Bitcoin Traded Pairs
You will therefore see bitcoin traded in pairs, for example BTC/USD or ETH/BTC, whereby the other side of the pair is the currency you will use to buy.
The most common pairs are:
The alternative to trading bitcoin directly is to trade it as a derivative. Derivatives are a way of accessing a market without having to actually own the underlying asset. In bitcoins case, this means that you do not need to own a wallet nor do you need to struggle with the risks of owning a cryptocurrency (the risks of being hacked).
There are two main derivatives available to you and I to trade; bitcoin futures and bitcoin CFDs.
A contract for difference is a contract you take with a provider or broker whereby you agree with the second party to pay or be paid the difference between the price you bought the contract at and where you sold it. This therefore means that you do not own bitcoin. However it does give you exposure to the market and the volatility of the market without having some of the attached risks.
Futures trading is an agreement to buy or sell a set amount of Bitcoin on a set future date and at a set price. Speculators can ‘bet’ on what they believe the price of Bitcoin will be in future weeks, months, or even years. The futures market is a regulated market and you must go through a traditional exchange in order to buy a futures contract.
The introduction of bitcoin futures has meant that institutional traders can enter the bitcoin market without actually having to own the asset, which has meant that liquidity has increased and in turn significantly reduced the volatility previously seen in the crypto market. It also means that sellers can enter the market without having to first buy bitcoin. In our view this has been a big reason as to why we have seen the price decline in 2018.
Both are arguably more attractive to both new and experienced traders, the main reason being that both normally come with a level of regulation, from some sort of governing body.
Trading Bitcoin on Exchanges
One of the first places you could trade bitcoin was on cryptocurrency exchanges. With the industry growing, there are plenty of places you can now trade bitcoin but exchanges are still a good place to actively trade. You will need an account that has cryptocurrency in it, this is what you will use to trade for bitcoin. There is no leverage trading on exchanges, this both has advantages and disadvantages. One good thing about trading on exchanges is that because the crypto industry is still in its infancy, different exchanges offer varying rates for bitcoin therefore you can apply an arbitrary strategy. This is simply buying on one exchange and immediately selling on another and taking the difference between rates.
How to Trade Bitcoin
Trading is a huge topic. Understanding when to buy and sell is more of an art than a science and is why you have traders dedicating their entire lives to trying to figure out the most profitable strategies. The simple answer is that due to peoples psychology, everyone will trade differently. There is no ‘one way’ to trading. You must learn a mixture of technical analysis, fundamental analysis and risk management whilst also being on top of your emotions when both making money and losing money.
There are several great places that can teach you to trade, one of our favourites are the guys at Vantage Point Trading, who have a deep understanding of technical analysis and risk management tactics.
The main difference in trading bitcoin compared to other, more traditional, asset classes is how volatile the market is. The spreads you will find on a bitcoin CFD is massive compared to currency pairs like GBP/USD.
Cryptocurrency Trading Strategies
Of course, not everyone wants to trade currencies in exactly the same way. This is why it is worth looking at the different cryptocurrency trading strategies and seeing which one looks right for you.
Technical Trading vs. Fundamental Trading
These are the two commonly used ways of working out what the future value of any stock or asset can reach. Fundamental analysis means looking at the real underlying value of the asset by taking all of the factors into account, such as the market it operates in and any major events that have affected it lately. On the other hand, technical analysis only really takes into account the volume and price of trading.
Which method should you use for cryptocurrency trading? There is no right or wrong answer. However, fundamental trading is typically used for long-term investing strategies. Technical trading is commonly regarded as being more suitable for swift, short-term moves.
What is a technical chart?
A technical chart will give you a visual representation of a currency’s progress over a period of time. The information isn’t always shown in the same way, but will generally include a clear picture of how the price has moved over that time.
What is a candlestick?
A candlestick chart gives a classic way of easily understanding the price movements of a stock, currency or commodity. There are different types of presentation but the general idea is to show the strength of the price movement with different colours that make it easier to spot patterns.
Long Term Trading vs. Short Term Trading
Are you planning on making a short-term profit from a cryptocurrency that you buy and then quickly sell? Or would you rather hold the coins for longer before selling? It is important to understand your preference, as it will determine the trading approach that you choose. Short term trading will usually mean making more regular trades to try and make a quick profit before moving on. Long-term trading gives you more time to make decisions.
Perhaps you see this as more of a long term move in a coin you believe has a strong future? If you are confident about the future of Bitcoin, for example, then you will want to know how to buy Bitcoin without intention to sell up anytime soon. Investing is more likely to mean that you are looking to make money over a longer period of time, so you will want to choose a currency with strong prospects.
Scalping is a rapid style of cryptocurrency trading that aims to take advantage of small changes in the market. The volatility of cryptocurrencies means that scalping is a choice that could lead to impressive profits. This style of trading needs you to have a cool head and to carry through with your plans no matter what happens.
This is a flexible type of trading that lets you work out how to take advantage of current price movements. Unlike day traders, they will typically hold coins overnight before selling. The volatile nature of Bitcoin and altcoins makes swing trading a good option to consider.
The Best Places to Trade Bitcoin
Once you know how to trade Bitcoin, the next thing you need to do is find somewhere to trade bitcoin. The following are our favoured providers in CFD trading, futures and exchange trading.
CFD Trading: eToro
Since 2017, the world’s pioneer of social trading communities, eToro, has been supporting cryptocurrency trading across the leading digital assets. At the time of writing, eToro investors can trade the market values of 13 different crypto coins.
However, as we’ve explained in our eToro review, instead of asking you to physically buy, sell and store cryptocurrency, eToro allows you to profit from the price moves of Bitcoin and other Altcoins without having to purchase and own these assets. In practice, this is known as CFD trading.
There’s no need to use a cryptocurrency wallet when you trade here. You simply seek to capitalise on the asset’s price movements. eToro is the only Bitcoin broker to be regulated by both the UK’s Financial Conduct Authority (FCA) and the Cyprus Securities and Exchange Commission (CySEC), giving you 100% peace of mind when trading Bitcoin. Furthermore, the social aspect of eToro makes it easy for those new to eToro’s platform to discuss trading angles with experienced crypto investors within the community and even copy their trading portfolios. If you are prepared to get started in the CopyFund and generate steady profits overseen by the platform’s very own investment committee.
- Fully regulated by the UK’s FCA and CySEC
- Available in 140 countries
- iOS & Android apps to trade on the go
- Copy cryptocurrency investment portfolios of expert, trusted investors
- Easy to track the performance of your portfolio
- No known security hacks
- No edits to stop losses allowed on cryptocurrency trading orders
- Currently not available as a leading exchange in US and Canada
- $25 flat rate for withdrawals of all sizes
Futures Trading: Interactive Brokers
Interactive brokers is an integrated investment management firm that offers several different products with bitcoin futures being one of them. In order to buy bitcoin futures you need to have a brokerage account that allows you access to the markets CME and CBOE. Interactive brokers ticks both boxes.
Interactive Brokers Pros
- Fully regulated broker
- World renowned broker with exceptional repuatation
- Access to CME and CBOE exchanges
- One account allows you to buy several different products
Interactive Brokers Cons
- Strict KYC process
- High minimum account size
Exchange Trading: Binance
This Asian Bitcoin trading platform has rapidly become one of the triumvirates of leading cryptocurrencye exchanges. Founded in Shanghai, China, Binance is already said to be worth upwards of $2 billion. As we’ve said in our Binance review, users can benefit from the lack of transaction fees for each deposit. Binance can execute up to 1.4 million Bitcoin trades per second.
- 0.1% trading fees
- 2-Factor Authentication
- Multi-platform and multi-language support
- Acts as a wallet to store crypto assets
- Up to 1.4 million trades per second
- It is only possible to buy Bitcoin here. Elsewhere, you can trade Bitcoin’s value against many other currencies
- No CFD trading options
- Advanced view trading platform difficult for beginner Bitcoin traders
- Known to store some elements of its users’ personal data
How to trade Bitcoin with eToro
Sign up with eToro
Click on our secure eToro link in the broker table at the top of this page and you will be taken to the following screen to sign up for an eToro account:
Deposit into your trading account
Follow the instructions to fund your account. eToro offers a wide choice of payment options including credit and debit cards, PayPal, wire transfer, UnionPay, Neteller, Skrill and many more:
Open your first Bitcoin trade
When you click on ‘Trade’ on the eToro Bitcoin trading page, the above box will come up, allowing you to enter a Trade or an Order.
Top 5 Tips For Successful Bitcoin Trading
- Take an interest in technical analysis of trading graphs to understand support and resistance points for Bitcoin
- Keep abreast of up-to-the-minute news which could affect market values
- Use stop losses to protect your investment fund
- Use prudent leverage within your means to maximise profitable trading positions
- Bitcoin markets are open 24/7 – pick your moments to trade when you’re most focused
Advantages & Risks of Bitcoin trading
- Trading Bitcoin is an attractive diversification from fiat currency and commodities
- Bitcoin is fast becoming a widely used payment method for goods and services so traded digital assets can be used for consumer purposes as well as an investment tool
- Considerable market momentum is driving liquidity and Bitcoin values against fiat currency
- There are many options if you want to buy Bitcoin as part of your investment. From exchanges to brokers and beyond, you can find what suits your needs
- Appeals greatly to long-term investors due to its emergence as a credible asset class
- Retail day traders will find trading opportunities daily with Bitcoin due to its volatility
- Some Bitcoin exchanges operate unregulated, leaving investors at great risk. However, crypto brokers that offer CFD trading for Bitcoin and altcoins are often fully regulated. For instance, in our breakdown of eToro we explain that they’re a fully regulated and licensed social trading community
- Bitcoin is a high-risk investment opportunity due to its volatility
- There is little historical support and resistance levels to undertake proper technical analysis of trading graphs
Trading Robots: Do they work?
Chatter about the legitimacy of Bitcoin trading bot and automation is rife throughout the community. As the cryptocurrency markets are 24/7, trading bots are ideal for executing trades quicker and more efficiently than any human trader. If you’re considering this option, head to the Bitcoin trading robot page of our site.
Trade Bitcoin Like a Pro
There’s no doubt that Bitcoin trading is a great way to diversify a traditional investment portfolio away from forex and stocks. The most important aspect of any Bitcoin trading is that you choose a platform that is safe, reputable and has your best interests at heart. We definitely recommend eToro for the reasons outlined in our eToro review.