Trading in bitcoins is buying and selling the cryptocurrency while leveraging on the up and down movements of the price, also known as volatility, to make a profit. The movement of price is occasioned by the ever-shifting number of people willing to buy (demand) or sell (supply).
It is a relatively new way of using bitcoins.
Risks in trading bitcoins
However, before you embark on this form of trading, it is important that you carry out your research to identify the risks and how to mitigate.
The rule of thumb is to only invest what you can afford to lose.
Here are some the risks that stand out;
- Abrupt and unpredictable change in market direction. Since bitcoins are traded globally and in different time zones, changes are bound to happen while you are asleep in your part of the globe.
- Losing money to unreliable trading platforms. Some bitcoin exchanges in the past have gone under with customers’ bitcoin deposits.
- Not knowing all the factors affecting market movement. The global nature of bitcoins means that it is subject to effects from all over. Experienced traders know how to use such platform as Bitcoin reddit to get all the breaking news. A novice might not know what is happening and, therefore, lose money.
Basics of the game
Trading bitcoins happens at a market, and three things every aspiring trader should know are:
- An exchange is a marketplace where the trading (buying and selling) bitcoin occurs.
- A bid is a market order to buy bitcoins. Buyers place bids at a price of their choice.
- An ‘ask’ is a market order to sell bitcoins. ‘Ask orders’ tell buyers how much sellers want for their bitcoins.
Thus, the exchanges bring together people looking to exchange bitcoins for USD/EUR or any other national currencies and vice versa. Therefore, the first step to trading bitcoins is to go to an online exchange and Sign up. You can make the first deposit either in bitcoins or fiat currency.
The good news is that exchanges do provide market information such as the reigning prices, asks, bids, volumes of bitcoins sold and historical prices.
Much of this market data is also displayed in the form of charts on websites such as Bitcoinwisdom, Bitcoinity and Cryptowatch.
Furthermore, the data is updated on a real time basis. Therefore, all traders always have the same information at any time. Sieving through this information helps you come up with a trading strategy.
Buying bitcoins at a low price with expectations to sell at a higher price is called taking a long position. Alternatively, taking a short position is selling bitcoins at a high and purchasing them back at a lower price.
You profit on the difference between by carefully timing your entry and exit positions. A good trader can do this repeatedly, thus making a profit on either direction.
Bitcoin is a risky undertaking but, if done with necessary information and resources, it is a great way to make money!