If you are keen to make money by trading cryptos like the Bitcoin, you need to first understand how trading happens. Bitcoin trading depends on price speculations in the market. Traditionally, trading used to be done when traders bought Bitcoins via a cryptoexchange in the hope that its prices would go up over time. Today, traders are using derivatives for speculating on rising and falling crypto prices to take advantage of the coin’s volatility.
What you need to know to start trading Bitcoins:
- Just like any other asset, Bitcoin prices are impacted by demand and supply. In this context, it is safe to compare the Bitcoin with gold because both have a finite supply. Another factor that greatly impacts Bitcoin prices is media coverage. Earlier, Bitcoin’s popularity was somewhat blurry because critics dismissed it as a transient phase and an asset designed for Dark Web. But, in recent times, positive media attention has attracted investors. A development that may have escalated Bitcoin prices during the pandemic is the halving episode in May 2020. In this, Bitcoin rewards get halved and it limits Bitcoin supply because the incentive to mine the coin lessens. As supply comes down, demand soars and prices of BTC automatically increase.
- Amongst the factors which increase Bitcoin value, it is important to understand the value of integration. Bitcoin’s mainstream adoption will depend on how fast it is accepted as a method of payment. When integration is on track, Bitcoin prices will soar. Besides, regulation changes, macroeconomic BTC announcements, and security breaches can all influence prices.
- To trade Bitcoins, you need a trading strategy, like trend trading, scalping, day trading, swing trading, or hodling. In day trading, you enter and exit trade positions within a single trade day, while in trend trading; you take positions which align with the existing trends. Hedging is when you mitigate risks by choosing apposition opposed to the one that is currently open. Hodling is when you buy Bitcoins to hold onto them for the long haul.
- When you trade derivatives, it means you speculate on Bitcoin prices through CFDs instead of owning the cryptos directly. So you can “go long” or “go short” when taking trade positions.
- Traders buy Bitcoins via an exchange when they wish to hold onto their coins. When you do this, you own the coins directly and expect their values to go up with time. But exchanges can lack proper regulations or infrastructure. Besides, they impose steep fees and have limits on withdrawals and deposits.
- As a beginner, you must determine whether you should go short or long in trading. Going long indicates you expect prices to go up while going short indicates you believe that prices will fall.
- You must have proper stops and limits for risk management. Normal stops close trade positions at a pre-determined level. Trailing stops stick to favorable market movements for locking in profits. Guaranteed stops close positions at a decided level, regardless of slippage.
- Your next task is to open a trade and monitor the market to ensure it moves as expected. You can use technical indicators to predict where prices will go.
- Finally, you need to exit a position to take profit or cut down losses which appear to go out of hand. The profits are sent to your trade account directly while losses get deducted from the account.