There are two ways to trade bitcoin: you buy the actual crypto currency in the hope of selling it profitably or you speculate on performance without ever owning the token. The latter can be achieved by CFDs.
In a CFD, you trade a contract based on the prices of the underlying market. This leverage product makes it possible to move much higher positions in the market with low capital expenditure. This can multiply your profits as well as losses.
Learn more about the differences between buying and trading crypto currencies.
Do I Need A Stock Exchange To Trade Bitcoin?
When you trade Bitcoin, you never interact directly with a stock exchange, but trade our buy or sell prices, which we receive on your behalf from several exchanges. All you need to open a Bitcoin position is a trading account with Etoro, Avatrade, IG Bank, IQ-Opion or similar.
Bitcoin exchanges work just like traditional exchanges and allow investors to buy and sell each other’s crypto currency. However, there are some advantages if you simply omit them completely:
- They are not sufficiently regulated, there is not enough public records and the infrastructure to respond quickly to requests is also inadequate
- Matching engines and servers are unreliable, which can lead to market exposure or reduced execution accuracy
- Deposits and withdrawals via exchange accounts are often subject to fees or restrictions and the purchase of an account can often take days.
When you trade Bitcoin, you get far better liquidity for your desired touch price. However, if you buy or sell directly on the exchange, you will normally have to accept multiple prices to complete your order.
Bitcoin Trading Strategies
Take a position based on expected short-term movements and close it out at the end of the trading day.
The strategy for you when: You want to respond to short-term opportunities in the bitcoin market, given the development of news or new patterns.
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Capture trends the moment they form and hold the position until the trend takes its course or signs of reversal appear.
The strategy for you when: you want to seize opportunities from market impulses.
Place frequent intraday trades on smaller price movements.
The strategy for you when: You want to be able to make small, continuous profits instead of waiting for a significant outbreak.
What Factors Influence The Bitcoin Price?
Although the volatility of bitcoin makes the crypto currency an attractive option, it is also a particularly risky market to speculate on. The price can change significantly and suddenly – and since the Bitcoin market operates around the clock, this can happen at any time of the day.
The volatility of the bitcoin price is influenced by a number of external factors, including:
There may be a limited supply of bitcoins – 21 million, all expected to be depleted by 2040 – but availability varies depending on the speed at which they enter the market and the activity of those who hold them.
The value of the bitcoin market, and how valuable it is considered, affects whether traders try to enter an opportunity or shorten the recent bubble.
All currencies are influenced by public perception, but none more than bitcoin, whose safety, value and longevity are questioned even in the best of times.
The Bitcoin profile, as well as confidence in traditional currencies, will depend on its integration into new payment systems, crowdfunding platforms and more.
Any major event could have a serious impact on the crypto currency, including changes in regulations, security breaches, macroeconomic setbacks and more.
Bitcoin has not yet been accepted by many companies worldwide and it remains to be seen what effects greater acceptance will have on the corporate stage.
4 Steps to Bitcoin Trading
1. Open A Trading Account
To trade CFDs, you first need an trading account at etoro, IG or similar. It only takes a few minutes to open and you can open your first position as soon as you have deposited money.
Unlike traditional buying and selling, you do not need an account with a Bitcoin exchange. This is because you are trading prices that we derive from several exchanges on your behalf.
2. Create A Trading Plan
You have chosen a trading strategy, but since the markets are still new territory for you, you should also consider a trading plan. This can help you make objective decisions, even when the stakes are high. This way you don’t keep the positions open too long – or close them too early.
Here Are Some Tips For Creating A Trading Plan:
- Determine what you want to achieve and divide your plan into short and long-term goals
- Decide your risk limit for each trade and for your entire trading portfolio
- Choose a risk-reward ratio so you know what profit you need to make up for any losses
- Select the markets in which you want to trade. Do you start only with Bitcoin, or with several crypto currencies?
3. Inform Yourself
Make sure you are always up to date with the bitcoin in order to gain a good understanding of the price development of the crypto currency.
Charts can prove to be invaluable tools when interpreting the behaviour of bitcoin. Historical data can help you understand how the market is moving, whereas a comparison of several time frames could provide deeper insights into emerging trends and patterns.
4. Place A Trade
Once you have worked out your position, you can implement it by placing a trade on our web platform.
To do this, enter the number of contracts in the trading ticket and define the closing conditions. With our standard Limited Risk account type, a guaranteed stop must be set for each position to determine at what level the position should be closed if the market develops adversely. This is free of charge until execution. You can also set a limit to close your position at a certain break-even point. Learn more about risk management.
If you mean the bitcoin rate will rise, then “buy” the market. Otherwise, “sell” it.