Hey guys! As Bitcoin is a hot topic right now with everyone and their grandmother already heavily invested, I think a brief article going over the basics should help some of you on your ventures to the magical world of cryptocurrencies.
This is a guest post by Megan Frydel, a bitcoin enthusiast over at bitemycoin.com
As stands at the moment, one Bitcoin is worth over a staggering $16,000. The value is fluctuating daily buy it upwards trajectory; hence the window of opportunity for those wanting to trade it a reasonable price is narrowing down.
Trading Bitcoin and other cryptocurrencies are different to the forex trading – the former can be seriously traded on a daily basis, while the latter is more of a long-term endeavour. Both can bring profits, but the risk is significantly higher for Bitcoin.
With cryptocurrency not been regulated and financial authorities being mostly against it, how can anybody trade Bitcoin? It turns out that the key to success is not only understanding the market but also knowing what are you buying.
Bitcoin trading is similar to Forex trading, but instead one can trade Bitcoin for USD (or any other fiat currency or cryptocurrency). The main attraction of Bitcoin trading is the vision of how profitable it can be. But cryptocurrency is still in its infancy, prone to extreme volatility, making the same most traders discouraged. Since Bitcoin is an international currency, it is straightforward to trade anywhere around the world.
The trader needs to first open an account with an online trading platform (e.g. Kraken, Bitfinex), provide some due diligence information (details, address verification), and transfer money to a trading account.
The first step is to buy Bitcoin with own currency. Imagine a scenario – a trader deposited $1,000 to the trading account and submitted an order to purchase 0.5 bitcoins at the rate of $999 per Bitcoin. If the current Bitcoin rate were $1,110 per bitcoin, the purchase would not be instant – the order is lower than the current price. The trader would receive bitcoins should the prices fall.
This process is known a limit order – a trader can check a trader’s book for a trading pair to see the lowest order and the highest buy offer. Reviewing a limit order supports making the right decision at the beginning of trading as it reduces the risk of losing too much due to extreme fluctuation.
Another thing every marketer has to be aware of is the market order. In this case, a trader submits a buy order at the price of the lowest sell order. So a market order will make sure to sell bitcoins at the highest available rate, based on the current buy order book price.
If you are an experienced forex trader, then you are most likely familiar with leverage trading (e.g. eToro, AVA Trade). It is more complicated than traditional trading but gives traders a chance to trade with a more substantial amount, despite not having a considerable capital.
Leverage offers high returns on the investment, but it comes to an extreme risk of losing everything, especially in case of cryptocurrency. An example of such a trade would be a 50:1 leverage – a trader can place trades 50 times higher than the money they have. Great, if there is a 50 higher profit made, but that is how much it can be a lot as well.
Bitcoin Trading Rules
Anyone who goes into any trading has to be aware of the particular rules. If you want to succeed and make a profit while trading cryptocurrency, do not let your guard down and stick to those:
Do Not Overinvest
You should never invest anything that you cannot afford to lose. Every trading investment carries an element of risk and should bear this in mind at all times. Hence, trade only the capital that you are prepared to miss. Don’t trade your kid’s tuition money or lifetime savings – at some point, you will encounter a loss, no matter how careful you try to be.
Have a Strategy
When anyone thinks about cryptocurrency investment, they automatically think that the only one in town is Bitcoin. In reality, there is also Ethereum and Litecoin as the most popular ones for leverage trading, and a whole world of other cryptocurrencies available to trade. Having a strategy means being prepared to switch between different cryptocoins. The same way as most trader don’t stick to just one fiat currency. Establish from the beginning which one is going to be your primary choice, what is your limit, and have a plan B in case you decide to switch.
Use Technology Wisely
If you still think of trading like it was portrayed in Wall Street than you are way behind, and before you start trading, you should catch up on your tech literacy. Trading Bitcoin is very competitive; hence you should use all available resources to increase chances of making a profit. By using the right tools, you will be able to access your trading platform at any time. There is a multitude of devices that track all the data and price changes for you, and send you a notification when something crucial happens.
Understand What are You Buying
You must have heard about ICO scams that are very popular at the moment. Some people get into the hype of buying whatever appears on the market, hoping it will be the next Bitcoin. Well, in reality only about 10% of ICOs survive the first six months so that the initial investment may be a total loss. Here you can find a great article on what to watch out for when trading lesser-known cryptocurrencies.
Don’t Follow the Crowd
One of the biggest mistakes that anyone can make while trading cryptocurrency is to do what everyone else is doing. Don’t do it unless you have a valid reason or clear understanding why it is an excellent time to sell. The same thing goes into trading the hyped coin – if a lot of people are doing it, the risk is higher, and the potential profit decreases. You should buy when everyone is selling, and sell when everyone is buying. Hype can cause a significant crash. So either buy before the hype even starts, or wait until it reaches a lower point.
It is almost impossible for anyone to become a millionaire overnight from cryptocurrency. You would have to be extremely lucky. Along with your trading journey, you will encounter people promising you millions, but what they are interested in, is your money. Instead of dreaming, focus on making steady returns on excellent and reliable currencies. If someone is telling you they are making millions, they would not be trying to sell anything but rather hold onto it.
Bitcoin Trading Mistakes
When it comes to the fundamental mistakes that anyone can do while trading Bitcoin, the person must be technically doing the opposite of what has been mentioned. One of the keys is to keep your cool and not get carried away. Cryptocurrency is an exciting market, but it is easy to let your emotions interfere and make strategic mistakes.
If you are thinking about trading altcoins or ICOs, do your research beforehand and stay up to date with all relevant news and updates. Cryptocurrency market can change as quickly as few minutes; you do not want to miss out just because you didn’t see a pertinent notification in time.
And finally – choose a reputable and secure trading platform. There are multiple guides available online about which platform to choose – don’t just fall for the first one that comes your way or because it offers an incentive.
The most critical aspect of Bitcoin trading is its volatility – if you want to trade Bitcoin, you have to prepare yourself for more downs than ups. If you are persistent enough, you will stay in the game for longer and make more significant profits.
At the same time, some say that a serious trader is not a day trader. But in case if Bitcoin, sometimes it may be better to trade on a daily basis. That is if you are experienced enough.
Above all, keep your head fresh. There will always be something that can shake the market and cause the price fluctuation. Learning how to trade Bitcoin takes time, but once you learn all the secrets and find your strategy, it will be worth it.