Cryptocurrency trading involves speculating on cryptocurrency price movements through a CFD trading account or buying and selling the underlying coins through an exchange.
Cryptocurrency CFD trading
Trading CFDs are derivatives that allow you to speculate on cryptocurrency price movements without taking ownership of the underlying coins. You can go long (‘buy) if you think a cryptocurrency will rise in value, or short (‘sell’) if you think it will fall.
Both are leveraged products, meaning you only need to put down a small deposit – known as margin – to get full exposure to the underlying market. Your profit or loss is still calculated based on the full size of your position, so leverage magnifies both profits and losses.
Buying and selling cryptocurrencies through an exchange
When you buy cryptocurrencies through an exchange, you are buying the coins yourself. You must create an exchange account, put up the full value of the asset to open a position, and hold the cryptocurrency tokens in your wallet until ready to sell.
Exchanges come with their steep learning curve as you need to become familiar with the technology involved and learn how to make meaningful use of the data. Many exchanges also have limits on how much you can deposit, while maintaining an account can be very expensive.
What drives cryptocurrency markets?
Cryptocurrency markets move according to supply and demand. However, because they are decentralized, they typically remain free from many of the economic and political concerns that impact traditional currencies. While cryptocurrencies are still very uncertain, the following factors can have a significant impact on their prices:
- Supply: The total number of coins and the rate at which they are released, destroyed, or lost
- Market Cap: The value of all coins in existence and how users are performing on them
- Press: The way cryptocurrency is portrayed in the media and how much attention it receives
- Integration: The extent to which the cryptocurrency easily integrates with existing infrastructure such as e-commerce payment systems
- Major Events: Major events such as regulatory updates, security breaches, and economic setbacks
What is bitcoin trading?
Bitcoin trading allows you to speculate on cryptocurrency price movements. While this has traditionally consisted of buying bitcoin through an exchange in hopes that its price will rise over time, cryptocurrency traders are increasingly using derivatives to speculate on both rising and falling prices – to make the most of the volatility of to make bitcoin.
At IG, you can take a position on the price of Bitcoin using financial derivatives such as CFDs. This product allows you to take advantage of price movements in both directions without becoming an owner of the underlying coins – which means you don’t have to take responsibility for the security of bitcoin tokens.
Steps to trade bitcoin
- Find out what moves Bitcoin’s price
- Choose a Bitcoin trading style and strategy
- Choose how you want to be exposed to Bitcoin
- Decide whether you want to go long or short
- Set your stops and limits
- Open and monitor your trade
- Close your position to make a profit or limit a loss
Find out what moves Bitcoin’s price
To participate in an emerging opportunity or short the latest bubble, you must first understand the factors affecting the price of bitcoin:
- Bitcoin supply. The current bitcoin supply is capped at 21 million, which is expected to be exhausted by 2140. Limited supply means Bitcoin’s price could rise as demand increases in the years to come
- Bad press. Any breaking news regarding Bitcoin’s safety, value, and longevity will negatively impact the coin’s overall market price
- Integration. Bitcoin’s public profile depends on its integration into new payment systems and banking frameworks. If this is done successfully, demand could increase, which will have a positive impact on the price of Bitcoin
- Key events. Regulatory changes, security breaches, and macroeconomic Bitcoin announcements can all impact prices. Any agreement between users on how to speed up the network could also lead to increased trust in Bitcoin – driving up its price
Choose a Bitcoin trading style and strategy
- Day trading
- Trend trading
- Bitcoin hedging
- HODL (or buy and hold)
How to trade bitcoin a day
Day trading Bitcoin means you open and close a position within a single trading day – so you don’t have overnight Bitcoin market exposure. This means you avoid overnight funding fees on your position. This strategy might suit you if you want to profit from Bitcoin’s short-term price movements, and it can allow you to make the most of daily Bitcoin price volatility.
How to trend bitcoin
Trend trading means taking a position that corresponds to the current trend. For example, if the market is in an uptrend, you would go long, and if the trend was down, you would go short. If this trend slows down or reverses, you should consider closing your position and opening a new one to accommodate the emerging trend.
Bitcoin hedging strategy
Hedging bitcoin means mitigating your risk by taking an opposite position to an already open position. You would do this if you were concerned about the market moving against you. For example, if you owned some bitcoin but were concerned about a short-term drop in value, you could open a short position on bitcoin using CFDs. If the market price of bitcoin falls, the gains from your short position would offset some or all of the losses on the coins you own.
HODL bitcoin strategy
The “HODL” bitcoin strategy involves buying and holding bitcoin. Its name derives from a misspelling of “hold” on a popular cryptocurrency forum, and it’s now often said to mean “hold on for dear life.” However, this phrase should not be taken too seriously – you should only buy and hold Bitcoin if you have a positive outlook on its long-term price. If your research or trading plan indicates that you should sell your positions to take profits or limit losses, you should – or you could – set stop losses to automatically close your positions.
Why Bitcoin cloud mining?
An unknown individual or group called Satoshi Nakamoto introduced the Bitcoin network in 2009. In 2021, there will be more than 10,000 different projects in cryptocurrencies. So each of them has its role in building the future of money.
The market value of cryptocurrencies reached $ 1 trillion for the first time in January 2021. It passed $ 2.5 trillion less than three months later. So it shows that this market is one of the growing markets favoring its investors.
Bitcoin Cloud Mining is the process by which you participate in a mining pool to a cloud miner website and purchase a certain amount of hash power. In this pool, the profit will distribute equally among all participants who have participated in the mining pool. It will happen based on hash power. Also, the cloud mining platform allows you to mine your BTC without installing any hardware and at no extra cost. So Minerland, the best crypto cloud mining service to earn Bitcoin, helps you invest in Bitcoin easily and with low risk. For more information about us, you can follow Minerland’s Instagram account.
Choose how you want to be exposed to Bitcoin
There are a few different ways you can get involved with Bitcoin:
- Bitcoin derivatives trading
- Buy bitcoin on an exchange
- Crypto 10 Index
Bitcoin derivatives trading
Trading Bitcoin derivatives with us means that you do not own Bitcoin directly but speculate on its price with CFDs. As a result, you can take a position when Bitcoin’s price goes up by going long or down by going short. Here are other benefits of trading Bitcoin derivatives with us:
- Leverage and Margin: CFDs are always traded with leverage, which means you only need to put down a deposit – known as margin – to get full market exposure
- Deep Liquidity: Thanks to our large customer base, our bitcoin market is very liquid. This means your orders are more likely to be filled at your desired price – even if you’re trading large sizes
- Hedging: Shorting derivatives can be an effective way to hedge your portfolio and protect against market downturns
Buy bitcoin on an exchange
Buying bitcoin through an exchange is mainly for those using a buy-and-hold bitcoin strategy. Because buying it through exchange means you own Bitcoin outright with the expectation that its price will increase.
However, there are some issues with buying bitcoin through an exchange:
- Bitcoin exchanges often lack proper regulation and the infrastructure needed to quickly respond to requests for support
- The matching engines and servers on bitcoin exchanges are often unreliable, which can lead to suspended markets or reduced execution accuracy
- Bitcoin exchanges often impose fees and restrictions on deposits and withdrawals from your exchange account, while opening accounts themselves can take days
- Decide whether you want to go long or short
- Trading financial derivatives make it possible to go both long and short depending on the current market sentiment. Going long means you expect the price of Bitcoin to go up, and going short means you expect the price to go down.
- Set your stops and limits
- Stops and limits are crucial risk management tools – and you have several to choose from when trading with us:
- Normal stops close your position at a set level, but they could be subject to slippage if the underlying market price changes rapidly
- Trailing Stops follow favorable market movements to lock in profits while limiting your downside risk. However, they can also be subject to slippage
- Guaranteed Stops close your position at a set level regardless of any slippage. Guaranteed Stops can be set for free, but you will be charged if your Guaranteed Stop is triggered
- These tools can all be selected via the deal ticket on our trading platform.
Open and monitor your trade
To open a bitcoin trade, you would buy if you think the price will go up or sell if you think the price will go down. Once your trade is open, you need to monitor the market to make sure it’s moving as you expected.
The technical indicators available on our trading platform can help you determine what the bitcoin price might do next. Indicators can also help you monitor current market conditions such as volatility or market sentiment.
Close your position to make a profit or limit a loss
You can close your position whenever you want to make a profit or limit a loss that has reached a level you are uncomfortable with. Your profits are paid directly to your trading account while your losses are deducted from your account balance.
Bitcoin trading benefits
- Opportunity to make big profits in a short period
- Traders can start buying and selling cryptocurrencies with a small amount of money
- Bitcoin trading is available 24/7
Disadvantages of trading cryptocurrencies
- Market volatility increases the likelihood of not making a profit or losing money
- Traders need to understand their risk tolerance
- Frequently buying and selling cryptocurrency to other cryptocurrencies and from cryptocurrency to fiat triggers more taxable events than investing
- Investment and trading used to be an exclusive club for the financial elite. But then cryptocurrency changed everything. Now that the world has bitcoin, all you need is a smartphone and an internet connection to change your financial future. The first step to growing your wealth with cryptocurrency is simple.
Frequently Asked Questions (FAQ)
Can I profit from bitcoin trading?
You can certainly profit from bitcoin trading, and your ability to turn a profit will depend on the depth of your market analysis, market knowledge, and the underlying market conditions.
How does bitcoin trading work?
Trading Bitcoin works by allowing you to take a speculative position on Bitcoin price movements using financial derivatives such as CFDs.
These allow you to go long and speculate on the upside, and short and speculate on the downside. The accuracy of your prediction and the size of the market movement will determine your profit or loss.
Is bitcoin trading safe?
Trading Bitcoin can be risky due to the volatility of the market. However, when you open an account with us, you get access to all of our risk management and training tools. This includes in-platform stops and limits, as well as the educational resources available on the IG Academy – so you can take control of your trading.
We are licensed by the Bermuda Monetary Authority to conduct investment and digital asset transactions, so any funds in your account are kept separate from our company funds – meaning your money is protected even if we go bust.
When is the best time to trade Bitcoin?
Although cryptocurrency is a market that is open 24 hours a day, seven days a week, some hours will experience increased volatility and liquidity. For example, at noon UK time, there may be increased volatility as both the UK and US markets gain momentum for the day.
Our market hours for Bitcoin are from 8 am Saturday to 10 pm Friday (UK time).