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How To Trade Bitcoin: Step-by-step Guide to Trading Bitcoin in 2021
Bitcoin was nothing more than a fringe project in an era not so long ago that aimed to question the global monetary system's status quo. Quick forward to 2021, and in a multi-billion dollar trading market, this highly disruptive digital currency now operates.
In reality, more than $50 billion worth of Bitcoin changed hands in the 24 hours prior to writing this guide. As such, this reflects highly favorable conditions for long-term and short-term trading in Bitcoin.
But it's no easy feat to exchange this digital currency, which is why we put together an in-depth guide on How to Trade Bitcoin in 2021.
The ins and outs of how this investment scene operates, what risks and rewards you need to remember, and how you can start trading Bitcoin today are clarified inside it.
In 5 Easy Steps, how to trade Bitcoin
The first step is to open a regulated exchange account, deposit funds, select Bitcoin from the platform list, and finally buy Bitcoin (go Long) or sell BTCC to trade Bitcoin (go short).
This guide on how to trade Bitcoin BTC in Layman's terms will break everything down so that you do not trade blindly. But, if you don't have the time to read it all through, this is what you need to do now to trade in Bitcoin.
Step 1: Open a regulated, commission-free Bitcoin broker account such as Binance, Coinbase
Step 2: Funds with a debit/credit card, e-wallet or bank transfer to your account
Step3: Choose how much Bitcoin ($25 minimum) you want to trade.
Step 4: Buy or sell BTC (go long) (go short)
Step 5: Validate the trade
Let's start learning how to trade with Bitcoin in 2021!
What is Bitcoins Trading?
Simply put, trading in Bitcoin is the process of speculating on whether you think the digital currency's price will rise or fall. This works exactly like any other financial market, such as stocks or forex, in exactly the same way.
That is to say, you can make a profit if you speculate correctly on the future course of Bitcoin. The amount you make will depend on how much you risked the trade and to what extent, in percentage terms, your prediction was correct.
Let's run through a very basic example of what this might look like in practice before we move on to the specifics of how to trade Bitcoin online.
You choose to trade the Bitcoin price against the US dollar.
As such, BTC/USD is traded. This crypto pair's current price is $18,000,000.
In the coming days, you think the price will increase, so you put a purchase order.
You're a $500 stakeholder
Bitcoin was priced 10 percent higher a few days later.
You close the deal and make a $50 profit (10% of $500 stake)
As you can see from the above in exactly the same way as every other asset class, the fundamentals of how to trade Bitcoin function. In other words, it came to fruition your hypothesis that Bitcoin would increase in value against the US dollar - so you made a tidy 10 percent profit.
The underlying mechanism of trading Bitcoin functions just the same as every other financial market, as we noted above.
However it should be noted that this digital currency is like no other. By this, we mean that Bitcoin is still a relatively new and exciting concept, so before you dive, it's vital that you know what you are doing.
Here's what you need to be conscious of:
1. Movements in Bitcoin Market Rates
The value of an asset is derived from demand and supply, whether it is stock, forex, or commodities. And of course - this principle, when exchanging Bitcoin, remains constant. If the consumer mood is strong, in simple terms, then there will be more buyers than sellers.
In turn, Bitcoin's price is likely to increase,
If however, investor sentiment on Bitcoin is adverse, then the reverse will occur. In addition to this, trends in real-world news can affect Bitcoin's demand and supply period.
For example, if the US government revealed that it was going to control Bitcoin as a currency, the cryptocurrency's price might actually be good news.
After all at the highest level, it would offer Bitcoin credibility and therefore all but ensure that the digital currency is here to stay. In the other side, this would have a devastating effect on its stock price if the US government declared that it was looking to ban Bitcoin.
The most significant thing to note is that during the trading day the price of Bitcoin will go up and down. In reality, trading markets for cryptocurrencies never sleep - so you can trade Bitcoin online 24/7.
2. Trading Pairs for Bitcoin
Comparing the mechanism to forex is the best way to comprehend the basics of how to exchange Bitcoin. This is because all trading of Bitcoin is enabled by pairs. This comes in two ways that are distinct.
Next, you have pairs of Bitcoin that are priced against a large currency. It goes without saying that this room is dominated by the US dollar - with BTC/USD the most exchanged cryptocurrency pair worldwide by far.
You may also exchange Bitcoin against other currencies like the Euro or British pound on some cryptocurrency brokerage pages. However in contrast to USD-denominated pairs, trading rates and liquidity levels would be much smaller.
Some traders want to dabble with crypto-to-crypto pairs in addition to BTC/USD (otherwise called crypto-cross pairs). You will be exchanging Bitcoin against another cryptocurrency, as the name suggests.
Ethereum (BTC/ETH), Stellar (BTC/XLM), or Litecoin (BTC/LTC) may be part of this. In themselves, these pairs offer lots of possibilities for making money.
For instance, you will often see the above alt-coins develop at a much faster pace than Bitcoin when the crypto-currency markets are very bullish.
Similarly, these coins drop even more frantically when the markets are bearish. As such when exchanging Bitcoin, both crypto-to-fiat and crypto-to-crypto pairs are worth considering.
3. Owning CFDs for Bitcoin or Trading
This is where things get interesting - as when trading Bitcoin online, you basically have two options. In the conventional sense, some people like to buy digital currency and expect it will grow in price in the medium-to-long term.
Alternatively, others prefer to buy Bitcoin CFDs. This means that without having to own or store the future price of Bitcoin, you can trade it.
Before describing the key differences between the two, we should remember that as per CFTC regulations, Bitcoin CFDs (and all CFDs for that matter) are not available to US citizens.
Own Bitcoin and Trade
If you want to exchange Bitcoin and own the underlying instrument, a controlled broker such as eToro will do this. If you make the purchase, before you plan to sell, you will maintain full ownership of the bitcoin.
This choice is better suited to those of you who are total newbies and do not know exactly how to properly trade Bitcoin. This is because you do not need any technical research expertise - nor do you need to think about short-term fluctuations.
The other choice is to use a trading exchange for cryptocurrencies. These usually sell hundreds of Bitcoin pairs that can be exchanged.
You won't be able to swap fiat pairs in the truest type in most situations. Instead, 'USDT' - which is a digital currency called Tether that is pegged to the US dollar - would reflect BTC/USD.
Trading Bitcoin Via CFDs
Bitcoin CFDs are an additional option that you have at your disposal. These are financial instruments, as noted above that allow you to speculate on Bitcoin without owning it.
CFDs, instead, merely watch Bitcoin's real-world global price.
The benefit of going the CFD route is that you're going to have the option of going short. In basic terms, in the case that the Bitcoin price goes down, this means that you are profitable. In addition, Bitcoin CFDs allow you to trade on the edge.
This ensures you can trade for more cash than you have at your side. For example, you can trade Bitcoin CFDs at a 50 percent margin in the European Union and the UK. This implies a position of £ 500 would require a deposit of only £ 250.
Ready to dive into investing in Bitcoin?
How to Trade Bitcoin Online - Building a Trade
READ: Proof of work vs proof of stake: what is the difference?
While later in this guide we will address the ins and outs of selecting a Bitcoin trading broker, we first want to explain how the order process works.
Crucially, regardless of which broker you use to trade Bitcoin online, the explainers outlined below stay constant.
1. Request to Purchase or Sell
Second, you will still have the option of placing a purchase or selling order unless you are using a broker to purchase Bitcoin outright.
For instance, let's assume that $14,500 is currently priced at BTC/USD. If you place a purchase order, this means that you expect the pair's exchange rate will increase. This means that if you put a purchase order, you assume the pair's exchange rate will decrease.
You should know that all positions need both a buy and sell order when learning how to trade Bitcoin online. If you entered your trade with a purchasing order, for example, you will need to close it with a sale order. The same rings true, but in reverse, for entering a transaction with a selling order.
2. Price of Entry
You will always have the choice of how you want to enter the market when setting up your Bitcoin trading position at your selected broker. This comes in the form of an order for a 'market' and an order for a 'cap.'
When you want your trade executed immediately, a market order is placed. It is possible that the exact price you get will be slightly above or below the current price you are being quoted. A limit order enables you to determine the price at which your Bitcoin exchange is performed. For instance, while Bitcoin might be priced at $17,210, when the price reaches $17,400, you might want to join.
If you are wondering which form of order you can select - on a case-by-case basis, this really varies.
For instance, if Bitcoin is moving at a parabolic pace in an upward direction and you want to hop on the bandwagon - you would probably be better suited for a market order.
This is because your trade is instantly executed and so you won't miss out.
If you're planning a short-term Bitcoin trader at the other end of the spectrum where you want to take advantage of a prolonged consolidation phase, then you will probably want to set up a limit order. This will ensure that your future profits can be maximized by joining the trade at the most attractive price possible.
READ: How to get started with cryptocurrencies
3. Strategy for Exit
If a buy/sell and market/limit order has been issued, you can then close your spot as you see fit.
You simply need to position the reverse order to the one you opened with as we described earlier. For eg, you need to close the trade with a purchase order if you have entered with a sale order.
With that being said, we would strongly recommend that you also put stop-loss and take-profit orders if you are learning how to trade Bitcoin for the first time.
In doing so, you tell your brokerage platform to automatically close your trade for you when one of two items occurs. Either your benefit from stop-loss is triggered or your order for take-profit is.
And what are stop-loss and take-profit orders in the Bitcoin trading sense, exactly? Well, stop-loss orders allow you to exit a losing trade by a defined amount when it is in the red. You might decide to limit your losses to 3 percent, for instance.
Take-profit orders operate the same way, But when a price target is achieved, you can leave the exchange. For example, if you are 10 percent profitable, you could order your broker to close the position.
When trading Bitcoin online, here's how the above scenario will work:
Let's say BTC/USD is priced at $16,000 at the moment. You're going long on this trade with a buy order
You want to restrict your losses to 3%, so you need to stay at 3% below $16,000 for your stop-loss order price. As such, your stop-loss should be entered at $15,520 If Bitocin increases by 10 percent, you want to close your trade.
As such, $17,60000 should be entered into your take-profit order.
As per the above, your 3 percent stop-loss order will be activated if the price of Bitcoin goes down to $15,520. Or if Bitcoin rises to $17,600 - your take-profit order of 10 percent would come into effect.
How to make Money Trading Bitcoin
So now that you know the ins and outs of how trading orders for Bitcoin operate, we need to explain how you actually make money. Once again, trading stocks, forex, or any other asset class is no different from the details here.
However if you're a total newbie and want to learn from top to bottom how to trade Bitcoin, here's what you need to know.
How do you make money from Bitcoin BTC trading?
1. Stake Over
The amount of money you will make while trading Bitcoin, first and foremost, will depend on how much you risk.
Your choice of broker dictates the minimum stake. For example, when trading Bitcoin, eToro enables you to risk only $25. However other brokers need a much higher stake.
With that said, the size of your stake should be dependent on the amount of trading capital that you have. Most traders would never lose more than 1% of their balance, for instance. As such, the overall stake does not exceed $40, if you have $4,000 invested in your brokerage account.
2. Percentage Terms benefits
The amount of money you will make from a Bitcoin exchange, on top of your stake, will depend on how much money you can make.
Everything you need to do here is multiply by the amount you have staked the percentage benefit.
For instance, if you risked $1,000 on a purchase order and Bitcoin grew by 10%, then you would make a profit of $100 Similarly, if you put a sell order on Bitcoin worth $2,000 and the digital currency fell by 20%, you would make a profit of $400.
It should be noted that when applying leverage - which we expand on below - the above benefits can be compounded handsomely.
3. Leverage from Bitcoin Trading
We should once again remember that this will not be open to US traders until we explain how leverage works. This is because leverage, which the CFTC forbids, goes hand-in-hand with CFDs.
If you are based elsewhere, however and you plan to exchange Bitcoin through CFD software, then you should be able to obtain leverage. As we described earlier, when trading cryptocurrencies like Bitcoin, the UK, Europe, and soon-to-be Australians are capped at 1:2.
Nevertheless, here's a simple illustration of how your Bitcoin trading margins can be amplified by leveraging.
You put a sell order on Bitcoin worth $1,000 You apply leverage by 10 percent at 1:2 Bitcoin drops Normally, you would have made gains of $100 on a $1,000 stake, but your gains are boosted to $200 as you applied leverage at 12
Take note, an ineffective trade in Bitocin would mean that your losses are enhanced by leverage.
Fees for Bitcoin Online Trading
You will need to pay a fee in order to exchange Bitcoin, like all financial markets in the online space. Ultimately, the exact fees and commissions paid will depend on your preferred broker. The key Bitcoin trading fees that you are likely to come across are listed below, though.
Trading Commission for Bitcoin
Every time you place a buy or sell order, trading commissions are paid. This is generally quantified against the stake and in percentage terms.
For example in order to exchange Bitcoin with another currency, Coinbase charges 1.49 percent. This implies that a transaction of $2,000 would cost you $29.80. Then, Coinbase will charge you 1.49 percent again when you close the place.
You have platforms such as binance at the other end of the scale that allow you to trade with Bitcoin without paying any fee. Alternatively, it's just the delivery that you need to pay - which we address in the section below.
Spreading Bitcoin
The spread is the distinction you are paid by your broker between the buy and sale price. In the world of forex, the number of pips identifies this. For instance, if the GBP/USD buy and sell price is 1.3010 and 1.3001, respectively - the spread is 1 pip.
However the spread is known as a percentage as Bitcoin is worth 4/5 figures (depending on where you are reading this guide) in dollar terms. For instance, if the BTC/USD buy and sell price is $10,000 and $10,050, respectively, the spread amounts to 0.5%.
Why does this matter, then?
Well the spread is an indirect tax, which at a small loss will still see your Bitcoin trade open.
If you spend $1,000 a year for instance, and the spread is 1% - Then your place, once it is executed, will be worth $990. This indicates, in basic words, that you have paid an indirect fee of $10.
In other words, you are back at the 'break-even' point only when your place increases by 1 percent and so - covers the spread.
Some Trading Fees for Bitcoin
Besides the above when you exchange Bitcoin online, you are likely to come across some other fees.
It involves:
Transaction Fees: To finance your Bitcoin trading account, you will need to pay a charge and again when you request a withdrawal. CFD Fees: You'll pay overnight swap fees while trading CFDs - with or without leverage. This is paid for each day you hold your trade with Bitcoin open.
Ultimately, before signing up, we should emphasize that it is important to verify what fees and commissions you would be asked to pay at your chosen broker.
Ready to dive into investing in Bitcoin?
Bitcoin 2021 How to Exchange - Step-by-Step Walkthrough
If you've read all the way through our How to Trade Bitcoin Guide, We hope you now have a firm understanding of the way things work. This does not only include the process of placing orders for purchase and sale, but also the awareness of the future risks and rewards.
Follow the step-by-step walkthrough listed below if you have your finger on the button and want to start trading Bitcoin right now.
How to Exchange Bitcoin in 5 Simple Steps in 2021
Phase 1: Pick a Broker for Bitcoin Trading
You will need to find an acceptable trading broker if you want to trade Bitcoin from the comfort of your home. There are hundreds - most of which are not worth your time - to choose from.
When choosing a broker for your needs, some of the considerations that you need to remember are as follows:
- Regulation: Does the trading platform of Bitcoin possess a reputable license for brokerage?
- Fees: How much do you need to pay in fees and commissions for Bitcoin trading?
- Payments: What payment options are allowed by the Bitcoin trading site?
- Account: Minimums: Is there a minimum sum for deposit and trading in place?
- Bitcoin Pairs: What Bitcoin pairs are provided by the trading site?
- Trading Platform: How is the broker's trading platform user-friendly?
- Mobile: Does it offer a mobile app on the Bitcoin trading platform?
As you can see from the metrics described above when selecting an acceptable Bitcoin trading platform, there are heaps to look out for.
If you don't have time to find a broker yourself, though, we'd recommend exploring binance. The broker is regulated by the FCA, ASIC, and CySEC - and allows you to trade commission-free heaps of crypto-to-fiat and crypto-to-crypto pairs.
You can also use the CopyTrading feature of the platform - which enables you to automatically copy trades of a successful Bitcoin exchange.
Step 2: Open a Trading Account for Bitcoin
You will then need to open an account once you have selected which broker you wish to exchange Bitcoin with. The method takes only minutes at eToro. Any simple personal details, such as your name and home address, is all you need to do.
As a controlled broker, binance will need to verify your identity at some level. But if at this point, you are not depositing more than $2,250, you can upload your photo ID later. However, before you can make a withdrawal, you will need to do this - or you plan to deposit more than the figure listed above.
Stage 3: Funds for deposits
One of the best things about using binance as a heavily regulated Bitcoin broker is that you will be able to deposit fiat currency funds. This is something that can not be sold by unregulated crypto-currency exchanges.
As such, binance allows you to use a debit card, credit card, Paypal, Neteller, Skrill, and bank transfer to deposit funds. Both payment methods are credited immediately, apart from the latter. $8 is the minimum deposit.
Step 4: Pick the Trading Market for Bitcoin
After you have deposited funds into your binance Bitcoin account, you need to pick the particular market you want to trade in.
binance, for instance, offers heaps of fiat-to-crypto pairs - such as BTC/USD, BTC/GBP. BTC/JPY, and BTC/AUD.
Lots of crypto-to-crypto pairs, such as BTC/ETH and BTC/EOS, are also available on the network. You may simply type it into the search box to find the business that you are interested in.
Or, head over to the field of 'Trade Markets' and click 'Crypto'. There you can see each and every trading market relevant to Bitcoin provided by the platform.
Phase 5: Bitcoin Exchange Location
You need to set up your order as soon as you have tapped on the Bitcoin market that you want to trade on binance. In this How to Trade Bitcoin Guide, we mentioned order types earlier - so scroll back up if you need to recap.
We should remember that at eToro - if you go on Bitcoin for a long time and do not apply leverage, you can buy the coin directly. This means that before you plan to cash it out, you own the bitcoin.
If however, you go short or add leverage on Bitcoin, then you are trading CFDs. Although both media are 1005 commission-free, Overnight Swap Fees are attracted by Bitcoin CFDs. As such, if you're interested in investing, For several months or years in Bitcoin, then ensure that you stop applying leverage.
Finally confirm your trade with Bitcoin and your order will be executed by binance!
How to Trade Guide on Bitcoin - The Decision
In summary, it will take time to learn how to exchange Bitcoin effectively. Nevertheless, it's a trade arena worth considering. After all, Bitcoin is one of the 2020 asset classes with the highest results - so it makes sense that more and more traders are looking to get a piece of action.
With that said, the most important thing is that you select a top-rated trading platform for Bitcoin.
In this regard, we have proposed binance, as you would gain from a good regulatory standing and commission-free trading environment. Best of all the platform is super user-friendly - so it can be used even by newbies!
For both traders and investors, binance-Best Cryptocurrency Platform
Over several years, binance has proved to be trustworthy in the crypto industry. We suggest that you check them out.
Questions concerning FAQs
Is Bitcoin trading secure?
Yes - Trading with Bitcoin is easy, but it is vital that you use a controlled platform. This is why binance is suggested - as the broker holds FCA, ASIC, and CySEC licenses.
How do I trade Bitcoin on the market?
Bitcoin trading is fast. All you need to do is open a controlled trading site account, deposit some money, and then determine whether you believe Bitcoin's price will rise or fall.
By investing in Bitcoin, will you get rich?
When trading Bitcoin, sadly, there is no magic sauce. That is to say, while some traders are able to trade this speculative asset class with immense profits, most end up failing. This is why, before taking the plunge, you need to learn the ins and outs of technical and fundamental science.
Is Bitcoin legally traded in the US?
Yes, in the US, trading in Bitcoin is legal. In fact, the US is responsible for the highest amount of Bitcoin trading globally. Take note that in the US, you can't exchange Bitcoin CFDs.
Can you trade Bitcoin with Leverage?
Yeah - but there are limits on leveraged Bitcoin trading. For example, with a leverage of 1:2, Europeans and Brits can exchange Bitcoin CFDs. However, Americans are not permitted to exchange CFDs at all - so this restricts the opportunity to gain leverage - with a regulated provider at least.
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