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Many people who want to get into crypto are wondering where to start. The most obvious places for many investors are brokers or exchanges. But what is the difference between the two services and what is best for you?
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The goal of trading is to profit from the price movements of an asset like Bitcoin in the short and medium term. This also applies to various cryptos, such as Bitcoin. The flagship crypto is particularly popular because of its ability to reach new price peaks.
Trading Bitcoin is how thousands of people worldwide benefit from the movement of Bitcoin’s price.
This page takes a closer look at Bitcoin trading: it explores the differences between trading and investing, how to get started trading Bitcoin in a few simple steps, where to trade Bitcoin, and we discuss different trading strategies you can apply.
At the end of this page, you should be able to open a trading account, fund it, create personal Bitcoin trading strategies, and set orders. Above all, remember that trading Bitcoin profitably is a lengthy process. You will only get better at it over time and with proper practice.
You must sign up with a broker or exchange to start trading Bitcoin immediately.
You need to sign up with a suitable broker or exchange. Make sure your selected broker has an industry-standard trading platform. And that can be used to make predictions and set orders regulated in your region.
Brokers like eToro are a great option because they are fully regulated in different countries and have an extensive cryptocurrency selection.
After creating your account and completing the KYC verification, you need to deposit money into your account. Always consider the funding and withdrawal methods supported by your platform. Most brokers support credit/debit cards, and bank transfers.
Once your account is funded, navigate to the broker trading terminal. This terminal is a user interface with a chart that tracks price movements, indicators that help you predict future price movements, and an order book that places the buy and sell orders.
Trading is buying and selling an asset to profit from the price change; the emphasis here is on the rise and fall of Bitcoin. Trading often needs to be clarified with investing, as both involve buying and selling an asset. However, they differ in:
First, trading is about how big the price movements are (also called volatility). The larger this movement is, the greater the chance of winning. Traders hunt for these moves and can benefit from fluctuations in both directions.
Investors do not benefit from a price drop. While price movements are also crucial for investors, they only make money when the price of their assets rises. So they limit their search to assets they think will increase in price. This creates a difference in how investors and investors search for the properties of an asset.
Second, traders look more at things like volume and liquidity, while investors look more at the return on equity and strong cash flow. Traders focus exclusively on the price movement of an asset. At the same time, investors also look at the company, the project, the financial sector, or the market behind the asset, two completely different forms of, for example, buying Bitcoin.
For example, a trader can only care about the volume and liquidity of the Bitcoin market. This is while an investor can focus on the level of Bitcoin’s mainstream adoption, market sentiment, and crypto regulation.
Ultimately, the trader focuses on properties that affect Bitcoin trading, while the investor focuses on properties that affect the value of Bitcoin.
Third, traders often focus on short to medium terms. A trader only holds the asset for a short period. Their time frame can be as short as 5 minutes or as long as one year. Anything longer is called an investment. They also always close their trades. On the other hand, investors buy to hold something for an extended period, often several years.
Fourth, because trading does not depend on the intrinsic value of an asset but only on price movements, traders do not need to own these assets to take advantage of their volatility. For example, financial instruments called derivatives allow traders to profit from price movements without owning the underlying asset.
On the other hand, investing means owning the underlying asset yourself. An investor must buy Bitcoin to profit from it. Therefore, a crypto investor will most likely buy this crypto from one of the best crypto exchanges, while a trader will use one of the best crypto brokers to trade derivatives.
Although some crypto exchanges also offer derivatives, and some brokers (such as eToro) sell other cryptocurrencies. The big difference is that exchanges mainly deal with assets, while brokers focus on derivatives.
Traders can buy and sell derivatives instantly, allowing them to make profits much faster than if they buy Bitcoin and then hold it.
Bitcoin trading involves taking advantage of Bitcoin’s price movements by buying and selling Bitcoin or using derivatives such as CFDs, futures, and options. The brokers offering these derivatives also offer a leverage feature for trading Bitcoin.
Leverage is a credit opportunity brokers provide to traders to help them increase their position size and potential profits.
Investing in Bitcoin involves buying Bitcoin, usually on an exchange, to profit from the increase in value in the long term.
Brokers are trading platforms that offer you the chance to invest when the price of Bitcoin falls and then sell it when its value rises back.
However, traders never buy Bitcoin through online brokers but use special contracts that give them the right to their original money plus any profit or loss made when the contract expires or closes.
Except for a few brokers, almost every trading platform offers bitcoin derivatives trading, which are different contracts that follow the underlying asset (Bitcoin) and have complex rights and obligations.
While the ultimate goal of trading Bitcoin is to generate profits, you, like any trader, have only one goal when trading Bitcoin: to make a profit. The most important thing to consider is how you can achieve this. There are several trading strategies you can use for this:
HODL, often translated as ‘Hold On for Dear Life,’ originated in the crypto world as a typo of the word ‘Hold.’ It would be best if you didn’t sell your crypto coins, even in bear markets. Holding is, therefore, more focused on investing than trading because investors have to refrain from selling, and traders always sell.
To increase the effectiveness of this strategy, you can buy more Bitcoin when the market drops and sell it when it peaks. But you have to repurchase it when the price drops. Judging by Bitcoin’s price history over the past seven years, this “holding” has been a good strategy. However, it requires some time and patience. If you buy Bitcoin with a HODL strategy, you do not expect quick profits but usually talk about storing Bitcoin for several years.
Day trading is the opening and closing of trades within a day. This strategy takes advantage of Bitcoin’s volatility to make a profit: the more volatile the price, the higher the profit (and loss) potential.
Day traders usually stick to the 1-hour time frame to capture small price movements. They could open multiple trades to achieve different small profit margins. Which together provide a more tangible total profit margin.
Day traders can also use the news trading strategy, trying to predict the outcome of an important news announcement and opening trading positions in advance. A good example is shorting Bitcoin when the government is about to announce a significant rate hike.
Day trading requires skill and patience and is often not recommended to newcomers.
Swing trading is a strategy that responds to price fluctuations. A price fluctuation is a significant change in the price of an asset. And this swing strategy involves anticipating this change and opening a trade in the same direction before that change happens.
Swing traders look for swing highs and swing lows as critical starting points for their trades. A swing high is the most recent peak reached within a certain period and is confirmed by a lower peak before and a lower peak after it. Thus, a swing low is also the lowest point reached within a specific time frame and is confirmed by a higher layer before and another higher layer after it.
Traders buy at swing lows and sell at swing highs. This swing trading can take days, weeks, or months, depending on the time frame.
Hedging is a different trading strategy. Instead, it is a risk management technique that helps traders offset their risk in a particular position. This is by opening a trade in the opposite direction of the related assets.
For example, a trader who owns Bitcoin can hedge against the risk of a price drop by buying a short futures contract of the same value. If the price of Bitcoin falls, the value of the coins falls, but the exact value is gained by the futures contract so that, ultimately, the loss of the coins is offset by the profit of the futures.
In this way, traders and investors protect themselves from the risks of volatile fluctuations. Hedging works well for investors with significant Bitcoin holdings, but traders can apply it.
Scalping works like day trading, but with small gains on a much smaller time scale, from a few seconds to minutes. However, the sheer number of trades executed can lead to significant profits if done correctly.
Scalpers stick to ultra-short time frames, usually from a few seconds to 30 minutes, when scalping and opening numerous trades.
The position trading strategy involves taking advantage of significant market movements. Those days, weeks, months, and sometimes even years can last. This trading strategy is often similar to investing, except that it also includes financial derivatives.
Some small trading strategies include copy, trend, end-of-day, and news trading. Each has its advantages and disadvantages. In the end, it is you who has to decide which one is the best and then stick to it.
The trade literature is littered with jargon and jargon that newcomers may need help understanding. So here are some key trade terminologies.
If you think the price of Bitcoin will rise, you can open a long position. This means you open a Bitcoin contract at a specific price and then close it for a higher price. So you make a profit.
On the other hand, if you think the price of Bitcoin will fall, you can still profit from this by opening a short position. You borrow Bitcoin from a broker, sell it immediately, and then wait for the price to drop. When the price drops, you buy back the same amount of Bitcoin but at a lower price. So that it doesn’t cost so much to repurchase it, after you return the borrowed Bitcoin to the broker, the remaining difference in money from when you first sold the Bitcoin is your profit.
However, with CFDs, you do not need to borrow real Bitcoins, as this contract is an agreement to replenish the price difference of Bitcoin from when the contract is opened to when it is concluded.
Shorting is generally riskier than going long because the value of an asset can stay below zero. So if a long trade goes badly, then there is a limit to the losses it can incur. However, the price of an asset could continue to rise forever. A short trade that goes badly can therefore lead to unlimited losses.
A market order is an instruction to buy an asset at the current market price. You can’t set a preferred price when you use market orders. This is because your broker will immediately execute the order at the most recent price set by supply and demand forces. You can only select the quantity you want to buy.
You need a limit order if you want to buy Bitcoin at a lower or higher price than the current price. This order instructs your broker to buy BTC at your desired price. You enter your desired price and amount in BTC when setting up such an order. When the price of Bitcoin drops (or rises) to that level, your broker will execute the order. In the meantime, wait.
Limit orders can help you buy in at favorable prices, but if the analysis needs to be done correctly, you can underestimate your limit price and thus miss a good chance of winning.
The amount of your trading position is what you place in the order. Many platforms give their users an added advantage by offering leverage. As a result, traders can gain greater exposure to the market by placing less than the actual amount in the order. Brokers, in this case, lend money to their users.
The trading platforms define the margin requirements and display them in proportions, such as 10:1. By providing €1,000; you can open a Bitcoin transaction of €10,000. The increased exposure can translate into higher gains, but this pendulum can swing either way, meaning the losses are also magnified.
Stop Loss orders are used to limit losses when the market turns red. Placing these two important Bitcoin input values determines when the order is activated. The stop price (the defined market price) and the limit (the price at which you want to sell on the market as soon as it is activated).
Using your own analysis, you can place the Stop Loss orders just below the key support levels to ensure the market will recover if the Bitcoin value continues to drop and exceeds this support level. Then the order is activated, and your positions are closed, saving you from losses.
Trailing Stop Loss orders is a variation in which the order adapts to changing floor resistance levels as the market rises. The order would be activated should Bitcoin fall below the last support level. These Trailing Stop Loss orders allow traders to constantly move their closing positions to limit their losses while making as much profit as possible.
Stop Loss and Trailing Stop Loss orders can be beneficial for inactive traders. Because if the Bitcoin market drops, they can automatically withdraw from it without logging into their trading account.
Overtrading: overtrading is the unnecessary trading of securities. Opening too many trades to maximize profits will do the opposite: losing money. Individuals usually have a psychological limit above which trading for a limited period becomes counterproductive. Instead of opening many trades, focus on opening a few well-planned trades.
Overleverage: If used correctly, leverage can increase potential profit. However, if used carelessly, it can destroy your entire trading account. Brokers in certain regions are only legally allowed to offer these leverage facilities at a specific limit—for example, countries such as the United States limit brokers’ leverage to 50:1.
Volatility: Volatility is the degree of volatility of the displayed price. This is due to how significant the price change is within a specific time frame. Volatile markets are suitable for making quick profits, but they cost you just as much money and also just as fast. So be sure to trade cautiously in volatile markets.
Unregulated platforms: Unregulated platforms have no obligation to regulatory authorities. This means that the safety of clients’ funds is at the broker’s discretion.
Market manipulation: Market manipulation occurs when one or more players with a large enough volume artificially move the market in their favor. This is usually to the detriment of others.
Changes in patterns: A change in practice is a shift in the current market trend or its behavior or structure. The market then usually starts moving in the opposite direction.
Overexposure: Overexposure occurs when a trader invests too much capital in one trade or asset or the entire market. There may be too much capital in the same sector or type of assets, so a drop in the value of those assets puts a significant portion of the money at risk.
‘Marrying your bags’ is a refusal to close a lost trade for sentimental reasons. Either because you “believe” in the assets or are unwilling to let go of the losses you have already suffered.
Diversification: Diversification is varying your portfolio by investing in different types of assets or other sectors. The purpose of this is to spread your risk. This is done by investing in a basket of assets that are not all correlated. Market conditions that may not be favorable for Asset A may be suitable for Asset B. If you have both assets in your portfolio, you can offset the losses on asset A with the gains made on asset B.
Overdiversification: Overdiversification occurs when you spread your portfolio too thin by investing in too many assets. The result is that the profits made are negligible because the capital invested in each purchase is too small to count the profits.
Scammers: Scammers are individuals or organizations that promise profits too good. They aim to get naïve newcomers to give them money or pay for courses that offer no value.
Bitcoin trading differs from investing in several ways. First, traders focus on profiting from Bitcoin’s price movements, while investors want to take advantage of long-term price increases.
Secondly, traders use derivatives such as CFDs, options, and futures to profit from price movements. At the same time, investors cling to buying the underlying asset. And finally, traders always sell, while investors can also hold an investment for life.
To start trading, you need to be able to combine both technical and fundamental analysis. This means that you know what makes Bitcoin what it is and what the price pattern of this crypto looks like.
We have focused on Bitcoin CFDs in this article because they are easy to understand and have no expiration date. To trade CFDs, you need a broker. We recommend eToro because they already have 25 million users, offer valuable features for newbies, and have 75 different cryptos to trade, including Bitcoin.
Please take a look at our step-by-step trading instructions on this page to start using eToro. You can also open a demo account to test the waters without using real money before diving into it completely.
Before you start, please know which strategy works well with your daily schedule (such as HODL, day trading, swing trading, scalping, or position trading) and which trading instruments support it (cryptocurrencies, options, CFDs, or futures).
Learn the trade jargon to follow popular literature and helpful teaching materials. And finally, beware of pitfalls such as spreading your capital too thin. This is by using too many different assets, putting all your money into one trade, or using too much leverage. Or stick to one trade (even if there is a loss), get emotional while trading, and not use a stop loss.