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Before learning how to trade Bitcoin, here is a quick intro to bring you up to speed:
- Created in 2009, Bitcoin happens to be the first crypto-secured virtual currency. Many more cryptocurrencies have come into existence.
- As of date, over 6,000 cryptocurrencies are in circulation, with a collective market capitalization of $300 billion.
So, what makes Bitcoin special?
- Scarcity: It’s a fixed virtual asset as only 21 million bitcoins will ever exist.
- Form of currency: Merchants transact in bitcoins, including big names like Wikipedia, KFC, etc.
- Decentralized: Transferring bitcoins from one wallet to another doesn’t require a centralized organization like a bank. It’s the Bitcoin network that facilitates peer-to-peer transactions.
- Requires resources and time to mine: New Bitcoins are created by computers solving complex calculations. It has become so competitive to mine bitcoin that you need access to extensive computing resources.
- Market capitalization: As of August 18th, 2020, the market capitalization of Bitcoin alone is $224 billion.
- Valuable: Bitcoin far outpaces all other cryptocurrencies in terms of value.
How to Trade Bitcoin: Investing vs. Speculating on the Price Changes of Bitcoin
As we learn how to trade bitcoin today, let’s clear up one confusing issue for many.
You can invest in bitcoins or trade bitcoins as contracts for difference. The formula for investing in Bitcoin is: Buy, HODL, Sell. Where are bitcoins sold? At exchanges —these are online marketplaces for sellers and buyers.
Kraken and Coinbase are well-known international exchanges. Country-specific exchanges also exist, such as Bits of Gold – Israel, Indoxdax- Indonesia, and Luno – Malaysia.
HOLDING —not a typo, the term emerged after someone misspelled holding in a forum — means storing bitcoins in your wallet to sell at a profit. For instance, an investor who bought 100 BTC in February 2011, when the price attained parity with the US dollar, only invested $100. When the value of one bitcoin reached an all-time high of $19,783 on 17 December 2017, selling the 100 BTC would yield $1,978,200!
Now, you can make money trading bitcoins and never own the bitcoins directly. All you need to do is speculate on whether the value of bitcoin will go up or down. It’s sometimes referred to as Forex bitcoin trading.
What’s more, utilizing leverage makes it possible to use small amounts of money to make more significant trades and profits.
The article deals with trading bitcoin as CDFs and where to trade bitcoin. Let’s get started.
Step 1: Find a Trading Platform Provider or Broker
Trade-in.Forex gives recommendations on the most competitive trading platforms. Trade bitcoin in the UK and in other countries by viewing the best brokers for your region. Our vetted brokers share great benefits such as generous sign-up bonuses, low minimum trades starting at $1, free demo accounts, and high payouts.
Sign up & create a demo account
Signing up with a trading platform takes a few minutes. Here are the necessary steps every new customer goes through:
- Registering personal details, e.g., first name, last name, mobile phone, email, and secure password;
- Confirming details and logging in;
- Creating a demo account.
Once you’re ready to trade with real money, you then add a payment method and deposit funds.
For illustration purposes, we will be using Olymp Trade that boasts of one of the most beginner-friendly interfaces, and the ForexTime demo account that gives you access to the professional industry-standard MetaTrader Platform.
Demo accounts are risk-free since you trade bitcoin with virtual funds. It’s the best way to trade bitcoin as a beginner, as it provides a training avenue with real-life market data.
Olymp Trade Demo Account: Bitcoin Area Chart – 15 Hr Interval
Forex Time Demo Account Example (MT4): Japanese candlestick chart 15hr Interval
b ) Open your first demo position
You will need to have a price chart open. Most trading platforms offer the following charts for corresponding cryptocurrency pairs:
- BTCUSD (Bitcoin vs. USD)
- ETHUSD (Ethereum vs. USD)
- LTCUSD (Litecoin vs. USD)
- RPLUSD (Ripple vs. USD)
- LTCBTC (Litecoin vs. BTC)
Similarly, cryptocurrencies are sold against the Euro. In the BTC/USD pair, Bitcoin is the base currency, and its value is expressed in terms of the quote currency.
So, how do you trade bitcoin as a CFD? You can only take two positions:
- Going long (Buy) – Enter the trade with the expectation that the value of the currency pair will rise.
- Going short (Sell) – Speculate that the value of the currency pair will fall.
Let’s apply this information in action:
By looking at the BTCUSD price chart, several bullish candlesticks seem to signal a temporary pullback from a downward trend to an upward trend. Therefore, we anticipate that the prices will rise.
In this situation, we go long and buy the asset. If you’ll be using the MetaTrader platform, creating a new order looks like this:
In Olymp Trade, the interface is simple, and opening your first position may entail clicking the UP button or Down Button.
We recommend making at least ten trades in the demo environment before proceeding with the rest of this article. Don’t worry about getting things right, just play around with a platform.
c ) Learn about commissions, spreads, pips, etc.
Most brokers charge commissions every time you open a new position. In some trading environments, the commission will be stated, and it’s based on the investment amount and the amount of leverage used.
The commission in Olymp Trade
If you’ll be using the MetaTrader Platform, the commission is not explicitly stated, but you’re given two prices, Bid Price/ Ask price (11953.8/11973.2).
You can calculate the spread (the cost of entering into the trade) by finding out the difference between the Ask Price and Bid Price. The price movement must be adequate to account for the cost of opening a position.
- Learn about pips, lots, spreads, leverage, and other critical basics in our Forex for Beginners Guide.
Step 2: Understand the Factors That Cause Fluctuations in the Value of Bitcoin
How did you fare on the first trial trades on your demo account? One thing that may have become apparent is that making successful trades is not as simple. You are required to predict market movements successfully. That’s why it’s essential to know all about the factors that influence the value of bitcoin.
Looking at news headlines, geopolitical events, political shifts, and other economic factors to determine the bitcoin price is referred to as fundamental analysis. When learning how to trade bitcoin for cash, the first lesson to remember is that its value is very volatile!
1-day price chart of BTCUSD for the Year 2020
From the price chart above, you can view the price fluctuations of bitcoin. As a testament of its volatility, on 13th March 2020, bitcoin’s value hit a low of $3,795 during the day, ultimately closing at $5,379. Several months later, on 17th August 2020, the value reached a high of $12,467
Table of Factors That Influence the Value of Bitcoin
|New releases||Negative publicity influences the perception of investors|
|Government regulation||Government bans, policy changes, and restrictions on exchanges, for instance, causes uncertainty among investors|
|Major global events||Bitcoin had an awful month in March 2020 when WHO declared coronavirus as a pandemic. It caused a panic sell-off.|
|Adoption by businesses||It has a positive correlation on the value of bitcoin as it increases confidence among users|
|Supply and demand||Less demand for bitcoin may cause prices to fall. Scarcity may increase prices|
|Cryptocurrency hacks||High-profile intrusions and theft of Bitcoin from exchanges have had effects on the bitcoin price|
|Geopolitical conflicts||For instance, the Russia and Saudi Arabia Oil war price|
|Political unrest||With the unrest experienced in Hong Kong, there was a surge in cryptocurrencies demand in the country|
|Trading volume||Increase in the number of bitcoins changing hands results in major price shifts|
|Halving event||Historically, the value of bitcoin jumps following the halving event that takes place every four years|
Step 3: Learn How to Trade Bitcoin Using Technical Analysis Strategies
Opening winning positions may seem like clever guesswork. You’re either lucky or not.
Well, that is not true. Becoming successful at trading bitcoin requires that you remove emotions and guesswork from the trades you make. Traders have formulated strategies, systems, styles, and technical indicators that they use to analyze the markets for entry and exit positions.
Technical analysis is something you can improve on. Market shifts can be confirmed by using lagging indicators. You can use leading indicators and past data to predict upcoming price movements.
Because technical analysis can seem overwhelming, here are some strategies you can begin applying as you practice with your demo account:
- Relative Strength Indicator (RSI) to gauge whether the market is overbought or oversold;
- Moving Average Convergence Divergence (MACD) indicator strategies;
- Application of Japanese candlestick patterns;
- Awesome oscillator indicator strategies (Zero Line, Saucer, Twin Peaks);
- On Volume Balance (OBV) indicator strategy;
- Pivot Points;
- Drawing trend lines.
Indicators in view: RSI and MACB with hand-drawn trend line
Additionally, learn how to trade in bitcoin using trading systems or develop a system that incorporates technical indicators, assesses market conditions, and includes rules for risk management.
Step 4: Become a Risk Manager
Prepare to make losses as you begin trading bitcoin as commodities of difference. Novice and expert traders differ in the way they utilize risk management tactics.
The fundamental risk management tool that’s made available by any bitcoin Forex broker is the stop loss and take profit.
Now, the stop-loss is built into your order. Primarily, you instruct the trading platform to close an open position if the price reaches a certain level. You can also execute stop-loss manually.
For instance, in the MetaTrader Platform, you can see the controls for setting a stop loss and take-profit order when you attempt to open a new position.
Here are some general guidelines when setting up a stop loss:
- Ensure that the market has a breathing space to move in your favor.
- Factor in the length of time you are prepared to wait to make a profit.
- Have a set risk to reward ratio. Commonly used ratios include 1:2, with some traders preferring bigger rewards such as 1: 3 or 1: 4.
- Ensure that your take-profit order sufficiently covers the cost of entering into the trade.
Some additional ways to minimize risks and guard your capital include:
- Limit your use of leverage to acceptable risk levels, particularly when trading with real money. At the same time, too little leverage minimizes your profits.
- Test out trading strategies and indicators using past historical data.
- If you’re going to sign up for a monthly paid trading system, perform back analysis to ensure that past signals actually yielded profits.
- Don’t get caught up in using trading systems and strategies in isolation. Ensure that you perform fundamental analysis, and keep abreast with the industry news.
With relatively high volatility and a chance to make big profits by correctly predicting price movements, Bitcoin remains a favorite among Forex traders. You can also trade it 24/7, unlike Forex markets, which are not active during the weekends. Ensure that you select a trading platform that you can be comfortable with. You can also test our recommended platforms by creating free demo accounts.
This post is also available in: Indonesia