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If you spend most of your time on the Internet or catching up with the latest trends on different news platforms, you must have heard about Bitcoin. Most of the tech news has been paying attention to Bitcoin prices, the Blockchain, ICOs, cryptocurrencies—and so on.
And while it’s impossible to keep up with all the trends that surround Bitcoin, one thing is clear; a lot of money is being made with the cryptocurrency. Irrespective of the negative news that surrounds it, there are legitimate businesses that make a lot of money with Bitcoin.
Bitcoin’s remarkable growth rate toward the end of 2017 shone the light as to why Bitcoin trading is a potentially rewarding niche for anyone willing to research and do everything right.
However, cryptocurrencies are volatile assets and Bitcoin isn’t exempted from this rule. One week the coin’s value will be up by 15%; the next it’s down by 10%. Find out how you can trade Bitcoin successfully in 2018 in spite of the constant fluctuations as the paragraphs unfold.
What is Bitcoin Trading?
Bitcoin trading is the art of buying and selling the Bitcoin cryptocurrency but not only. Like any form of trading, you purchase Bitcoins, hold them in a wallet for a while and sell them when their value rises. Sometimes all these happen within the fraction of a minute.
When cryptocurrencies are on the rise, Bitcoin will often rise by up to 3% within a few seconds. Day traders spend long hours following market prices, just timing for the right time to make a sale. Some traders use bots known as Algo traders, programmed to execute trades based on changes in Bitcoin’s prices.
However, the most popular form of BTC trading involves holding cryptocurrencies indefinitely and only selling them when their value rises by a decent percentage. Investors who held Bitcoin for the whole of 2017, for example, earned nearly 2000% their investments.
Buying and holding cryptocurrencies has its challenges though. It requires a deep understanding of how the process works. You need a Bitcoin wallet, register on a BTC trade exchange and go through an often long process to get Bitcoin. To make trading easier, CFDs (Contracts for Difference) allow investors to speculate on Bitcoin’s price movements and invest using their fiat money.
How to Trade Bitcoin?
Cryptocurrency exchanges and investment companies offer lots of ways to trade Bitcoin. From day trading to bot trading, leveraged trading to CFDs, investors can’t complain about not having opportunities to get rich trading Bitcoin.
Here are some of the most popular Bitcoin trading methods.
Bitcoin Long-term Trading
Bitcoin investors will sometimes say “HODLing” when referring to buying Bitcoin and holding the cryptocurrency for the longest term possible. Holding is a straightforward way to make money with Bitcoin, and it’s often the most rewarding of all other methods.
To start holding BTC, register on a Bitcoin trading platform like Cex.io. Get verified by providing your name, addresses and your passport ID, and purchase any amount of BTC using a credit card or bank transfer.
But before you purchase the Bitcoin, find a good Bitcoin wallet to secure your coins. Crypto wallets are as simple as mobile apps, desktop programs, web applications or physical devices programmed to be wallets. The wallet secures Bitcoin by keeping the unique addresses that prove you own the coins away from the public.
With a Bitcoin wallet set up, purchase BTC at cex.io or any other exchange of your preference. Transfer the Bitcoin from the exchange and store them in your personal wallet. Crypto exchanges are prone to hacking. Therefore, ensure you transfer your coins out of the exchange.
Still, on holding Bitcoins, it’s worth noting that all Bitcoin wallets don’t offer the same level of security and convenience. Wallets that secure Bitcoins online are vulnerable to hacking. The safest wallets are hardware wallets because they store cryptocurrencies offline and are engineered to be completely secure.
Bitcoin Day Trading
As a day trader, you have two options. Quit your day job and spend every day researching about Bitcoin price and executing trades, or use a trading bot to do the hard work for you. If you choose to trade manually, you will need a lot of dedication, research and determination to succeed.
Bitcoin’s prices change so fast. Negative news coverage can cause the coin to lose value by more than 10% instantly. On the other hand, positive news on the media can bolster the coin’s value instantly. A good trader must stay ahead of time and speculate on Bitcoin’s price correctly.
Apart from news, Bitcoin’s price is affected by the law of demand and supply, general speculation by investors and manipulation by whale investors. Emotional trading can also affect your success as a trader.
To succeed in day trading, you must decide to make every decision rationally and objectively. You can’t allow your emotions to control your judgment. You must differentiate opinion from facts and research a lot to make the right investment decisions.
Trading Bots/Algo Trading
Algorithm trading or simply bot trading is the process of automating a trading process. A computer program is set to read market prices and execute a buy or sell order automatically. Bot trading is a growing practice in the crypto world thanks to the high and fast fluctuation rates in the industry.
An Algo trading bot is set to time the market, read prices and quantities so that it executes a trade as programmed. Bots are preferred where you can’t spend the day doing the trading yourself and if you also want to remove the element of emotional trading.
A simple Algo bot can be set to execute orders based on the following parameters:
- Buy 10 BTC when its weekly average price moves above its three months average price
- Sell all BTC if their value dips below 60%
- Sell 5 BTC if the price moves up by 10%
Modern trading bots are advanced and can use a wide range of parameters to execute trades. On the downside, bots are not perfect. They have their flaws that may lead to losses. Some bots have bugs or could be programmed to steal from you. If you consider using bots to trade, do thorough research about them.
Bitcoin CFD Trading
Bitcoin CFD trading is a simple investment concept. You speculate the price movements of an asset like Bitcoin. If you are right, a broker pays you the difference. If you are wrong, the broker keeps the difference.
An example is when you speculate that Bitcoin’s price will move up by 10% in the next three months. If you invest $1000 in a CFD and Bitcoin’s price actually moves up by 10%, a Bitcoin broker will pay your $1000 back and 10% of $1000 on top which is $100.
If you were wrong and Bitcoin’s price loses value by 10%, you lose 10% of your investment. CFD trading is advantageous in that you don’t get to buy and store Bitcoins. You only fund an account using fiat money and enter into a CFD contract of your choice.
A good CFD contract is not rigid though. A lot of Bitcoin CFD contracts are flexible so that you realize profits when you want to, set stop-loss limits or use leveraged trading.
Leveraged Bitcoin Trading/Margin Trading
Leveraged trading or margin trading, is a way of maximizing your profits using funds loaned by an exchange or broker. Leveraged trading also amplifies your risk. Often known as margin trading; leveraged trading gives you the power to trade with money you don’t own.
Different Bitcoin exchanges have different rules and terms for margin traders. Some exchanges offer leveraged trading on a ratio of 1:1 while others provide leverage of up to 100 times. An exchange offering leverage on a ratio of 1:100 will lend you $100,000 for every $1000 you own.
With $100,000 in your account, a profit of 1% will amount to $1000, which is much higher than you could earn by investing $1000. However, the risk for margin trading is as high as the potential profits. If the markets move against you and you lose 1%, the broker will deduct $100 from you. That is 1% of 100,000.
Only experienced traders should dive into margin trading. If you attempt to try out leveraged trading while you are still new into trading BTC, you might find yourself losing all your funds within a week.
Is Bitcoin Trading Profitable?
Volatility is the order of the day in the crypto world. Bitcoin’s price always moves up and down, creating room to make profits and risks for losses as well. There are profits in trading BTC if you can speculate correctly. But you also risk losing money if the markets move against you.
Compared to 2018, trading BTC in 2017 was more profitable. Bitcoin started 2017 at $972. Nearly every week in 2017, the cryptocurrency was on an upward trend. By June 2017, BTC was valued at more than $2500. By the end of the year, the cryptocurrency was trading at $19,000.
In 2018, BTC underwent a market correction that saw its price move from $13,000 to $6,200 in ten days. The market correction wasn’t expected by many investors, at least not the way it happened. But since the market correction, Bitcoin has gained value and lost value week in, week out. The good thing, the upward price movements are more than the losses. There are times when Bitcoin’s price has moved up by more than 30%. In fact, after the January correction, Bitcoin’s value went up by more than 50%, spiking from $6,520 to $10,400 in two weeks.
Is Bitcoin Trading Safe?
From exchanges getting hacked to Bitcoin’s volatility being unbearable at times, there is a lot of reasons to fear trading Bitcoins. Fortunately, the days when trading BTC was considered unsafe are gone.
Five years ago, only a handful of cryptocurrency exchanges controlled trading, poor services made trading difficult. People had little knowledge of how the industry work and many traders could easily lose their money.
In 2018, there is no reason you should fear trading BTC unless you are afraid of the volatile nature of the industry. There are a lot more Bitcoin wallets, some that cannot be hacked. Bitcoin exchanges have improved their services, and you shouldn’t lose your funds trading in a properly managed trading platform.
Bitcoin is more stable in 2018, more than it has ever been. After the January 2018 market correction, the cryptocurrency has had a steady growth curve with occasional fluctuations as expected. If you want to create passive income with BTC, the opportunity is still there.
However, research is still important if you aim to make money trading BTC. You have to stay ahead of the news, stick with secure wallets and avoid unsafe Bitcoin exchanges. Know when to trade and when to hold BTC.
What about Taxation?
Bitcoin is decentralized, but that doesn’t mean governments don’t want to tax it. The US government treats BTC as a tradeable asset and expects you to pay taxes when you profit from it. However, most countries don’t tax BTC.
Bitcoin is still a growing industry. It may have grown by more than 100,000% since its inception, but a lot is expected from it. Investors who want to make money trading cryptocurrencies have a lot of opportunities.
The easiest way to profit from BTC trading is to purchase Bitcoins and hold them in a secure wallet until prices increase. However, you can maximize your profits by using bots to trade for you, entering into CFD contracts or engaging in margin trading.
Of course, not all trading methods are created equally. You can make a lot of money margin trading, but you can also lose a lot of money in the process. With day trading, you will probably only make a profit of 1% a day. But cumulatively within 30 days, you can make more money than CFD trading.
Do a lot of research and choose the Bitcoin trading method that works best for you. To maximize your profits, consider combining two or more trading methods. And since there are no limits with BTC trading—you can trade as much as you want with as many trading methods as you can.
Thank you for reading our Bitcoin explained guide. Feel welcomed to explore how you can trade altcoins and ICO on our website.