You probably are aware that Bitcoin (BTC) was created and released in 2009, but it was not until late 2016 when the cryptocurrency market took off and became somehow mainstream. Its biggest rally yet came about in 2017. It was preceded by a craze for the new and highly lucrative crypto industry that saw every retail investors rush to acquire a piece of this revolutionary digital currency.
The legacy cryptocurrency hit an all-time-high (ATH) of $19,891 in December 2017 before rescinding to a considerably long bear market that has lasted more than 18 months. As of today, BTC has shed around 82.3% of its peak value.
But this certainly is not the first time that Bitcoin traders and investors have had to deal with this type of volatility. Between 2014 and 2015, a bearish bitcoin run saw the digital coin lose more than 82.19% of its value.
After bottoming at a low of $3,200 in late December 2019, the cryptocurrency market started a new rally that is now delivering almost 168% return year-to-date (YTD), making it the best performing asset class in the market.
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How to Trade Bitcoin in 3 Easy Steps:
Step 1: Open a CFD trading account
Create a free bitcoin trading account with our recommended crypto broker. You will need to complete the user profile by filling such details as names, email and trading experience.
Step 2: Deposit funds
After your trading account is approved, you can now deposit the initial minimum deposit required using one of the supported payment methods.
Step 3: Demo and live trading
Start trading in the broker’s real time demo account to gain better understanding of their platform and familiarize yourself with the crypto market before live trading.
Disclaimer: eToro - 75% of customer lose money when trading CFDs
Step 1: Opening a Trading Account
Before even thinking about trading any type of asset/security, you will need a trading account with a brokerage house.
The account opening process is straightforward, and in most cases, it should only take a couple of days after submitting the request to gain access.
The crypto space is filled with brokers offering different types of trading accounts. And while they have differently designed platforms and pricing methods their approach to trade, the analysis techniques, educational and research content as well as the indicators hosted on these platforms are pretty much the same.
If you are planning on trading Bitcoin and any other cryptocurrency, we recommend opening your account with a highly regulated and reliable broker like eToro. With all the volatility witnessed in this market, it is imperative that you have a reliable broker that will not disappoint when it comes to order execution speeds.
Slippage and entering into or closing a trade position late can cost you profit in case of a winning trade or see you suffer more losses in the case of a losing trade. Here are some of the brokers we recommend to our readers:
1. eToro - Social Trading meets Crypto!
With the rise of Social Networks, the founders of eToro saw an opportunity to create a platform that connects both experienced and inexperienced traders. The result was the first social trading network which later transformed into a fully operational and dedicated brokerage house. eToro has become an online trading powerhouse when it comes to offering such services as copy trading and ideas sharing as part of their business model.
A social platform will only be as good as its users, in the case of eToro the firm is full of professional and experienced traders offering their knowledge as part of the copy trading and portfolio managing initiatives. If you are new to trading you should consider using eToro as it will allow you to interact with more experienced individuals, and you will even be able to copy their trades (this will allow you trade and earn while learning from them).
It is important to mention that just like the company was ahead of the game in terms of social trading, they were also ahead when it comes to bitcoin adoption. Bitcoin trading was initially offered in the platform in early 2014, almost two years before all the hype and before the market took off. eToro’s commitment to the cryptocurrency movement is so big that the firm offers more than 12 different options for trading and investing.
- Minimum Deposit: $200
- Best Feature: Social Trading Platform
- Recommended for: New traders and investors interested in following a more technical and active trading strategy.
- Range of Assets: Compared to Robinhood, eToro offers access to a broader range of asset classes besides stocks and Crypto. If you are a trader interested in profiting from different markets, you will definitely love eToro.
- Social Trading: eToro offers a state of the art social trading platform.
- Intuitive Platform: The firm platforms follow a very intuitive and minimalistic approach making the platform easy to use for beginners.
- CFD: Etoro does not offer access to buy real bitcoin, instead the firm offers its CFD products which are synthetic derivatives of the value of bitcoin.
- Mobile platform: eToro mobile platform is not at the level of their competitors as it features limited trading tools
2. Cryptorocket - Highly advanced trading platform
Cryptorocket is highly advanced and crypto-based CFD trading platform. It supports a wide range of cryptocurrencies including Bitcoin. It is relatively new and features a host of highly advanced trading tools and indicators that relate to trade analysis and risk management. Though simplistic, its trading platform has a friendly user interface that makes it easy to use for both veteran and beginner crypto traders.
Live trading on Cryptorocket is free, there are no hidden transaction charges, and there are no withdrawal or deposit fees. Rollover fees for overnight and weekend trading are also highly competitive.
- Minimum initial deposit: $10
- Best feature: Doesn’t require KYC verification
- Recommended for: Both beginner and veteran crypto traders looking for an inexpensive bitcoin exchange
- MT4 and Webtrader: Cryptorocket supports bitcoin trading on their proprietary web trader as well as the MT4 platform
- Competitive fees: Live trading on cryptorocket is free and the broker maintains competitive trading costs
- Customer support: Cryptorocket has a helpful and readily available customer support team
- Unregulated: Cryptorocket, unlike eToro or Forex.com is not a regulated trading platform
- No live support: There is no phone or on-site live support and you only have to contact them via email or on social media
4. Robinhood - Commission Free Cryptocurrency Trading
Robinhood was the first online trading platform to announce a new approach to trading where trading would be free of any fees and commissions. While in the past other names have offered a similar approach with other assets like forex or CFDs, this was completely unheard in the stock and later the crypto market.
It is worth noticing that the firm was founded in the middle of the financial crisis as a response to the financial crisis in the country and also of the market. Since 2018 the company started offering access to the major cryptocurrencies in the world, allowing its users to buy and sell these virtual currencies. Robinhood maintains an easy to use trading platform with several sophisticated analysis tools.
- Minimum Deposit: $200
- Best Feature: Trading is free of commission and fees.
- Recommended for: Swing Traders and Long Term Investors.
- Simplicity: Robinhood has always maintained an easy to use trading platform suitable for both beginners and pro traders.
- Security: Robinhood platform is highly secured with military-grade encryption technology that makes it safe buy and store your virtual coins.
- Free Trading: Since inception the firm has maintained a commission-free trading model for both its stock and crypto products.
- Unregulated: Even though Robinhood is a regulated entity in the US, their Cryptocurrency focused subsidiary is not.
- Not available in all States: The broker hasn't rolled out operations in all states
Step 2: Choose your Trading Analysis Method
When it comes to the financial markets, no one can be 100% certain of what is going to happen next with the price of an asset or a security.
The idea behind trading is to be able to identify patterns, signals, and other indicators that will make the probabilities of one thing happening over another. If you can become good at reading the markets and managing probabilities and possibilities, you boost your ability to post a higher win-loss ratio for your trades.
The two principal approaches to analyzing the crypto markets and making trades based on price action are Technical and Fundamental Analysis. These two are the major branches of market analysis and they are utilized and implemented by almost every trader and institutional player in the world.
Technical analysis is the art of studying market moves and predicting future price direction and viable trading opportunities by looking at the past statistical data relating to the tradable instrument.
The foundation of technical analysis is based on analyzing patterns of price action to evaluate the strength or weakness of security.
In today’s world technical analysis has become one of the most prevalent approaches to trading and investing. Numerous institutions and individuals have therefore dedicated a lot of time to create some of the most advanced technical analysis tools available today.
Technical Analysis and Charting are great tools for short term trading, intraday or even scalping as it allows for great signals to enter the market.
Fundamental analysis, on the other hand, involves studying factors that affect the value of a security, from macroeconomic factors like the economy and the industry to financial conditions directly from the underlying asset.
The ultimate goal of fundamental analysis is to provide a quantitative model that can be used by the trader or the investor to compare the tradable instrument’s current price relative to its value. This analysis type will usually result in an asset being consider undervalued or overvalued.
Fundamental analysis works well with position and long term investors looking yo buy and hold onto an asset for a long time.
With Quants taking control over a considerably large portion of the financial markets. Most traders have turned to hybrid or dynamic approach for their analysis.
The hybrid strategy involves consolidating both the fundamental and technical analysis techniques and coming with a mathematical approach that you can use to more accurately predict the price action.
And while the model is relatively new, it has proved to be more effective that most technical and fundamental analysis techniques.
One of the key benefits of utilizing a hybrid model is that it is more accurate than most other analysis techniques available today. The downside to its application, however, is the fact that it is more technical to configure and operate.
Step 3: Decide on an appropriate Trading Strategy
The choice of a trade analysis methods and trading strategy are in tandem. Either influences the other. If for instance, you are more comfortable with technical analysis, you will be better off using short-term trading strategies like Day trading and Scalping. Fundamental analysis, on the other hand, is more applicable for longer-term trading strategies like swing trading.
We explain the three bitcoin trading strategies here:
i) Day Trading
Day trading is arguably the most popular online trading strategy.
This model consists of opening and closing positions within one calendar day. And it allows individuals to benefit from small movements in price. In order to make this approach worth the risk, given that you are operating within very small pip movements, it is common to see individuals utilizing high levels of leverage in order to capitalize on the smallest price movements.
Day traders are often also referred to as technical traders as they pay little to no attention to the underlying factors influencing the price of the tradable security.
Even though day trading has become a very popular crypt trading strategy, traders should be aware of its complexities and how it is impacted by the often huge volatilities. To succeed as a Bitcoin day trader, you will need strong risk management tools that will allow you to balance between winning and losing traders.
Scalping involves profiting from minor price changes in the price of the cryptocurrency.
And in most cases, the strategy requires a trader to execute dozens if not hundreds of trades on a single day.
The idea behind scalping is to compound small gains into a large profit within the day. And like day trading, scaling relies heavily on technical analysis while paying little emphasis to fundamental analysis.
Given the huge volatilities that characterize the crypto space, the scalper must also arm themselves with solid risk management tools like guaranteed stop and trailing stop losses.
iii) Swing Trading
Swing trading follows a more macro approach to the markets on which a trader maintains an open position for short to medium-term periods of time.
In some case, the crypto trading positions can remain open for days, weeks or months at a time. The benefit from a swing trading model is that you won’t be executing trades every day making it possible for part-time traders who only have limited time to fully analyse the markets.
In most cases, you only need to enter into a position and set your preferred stop loss and take profit levels. The stop-loss will prevent losses to exceed an x amount in case the trade goes south, and the take profit order will close the trade as soon as the target profit level is triggered.
Swing trading relies majorly on a fundamental analysis of the preferred cryptocurrency by looking at how the past price may affect your preferred coin’s price direction.
Step 4: Open a Bitcoin trade
eTor has for the past few years positioned itself as one of the best bitcoin trading platforms. Outside the United States, eToro traders engage in Bitcoin CFD trading while U.S traders get to trade in the real bitcoins that are stored in free eToro Bitcoin wallets. The wallets are free and automatically issued to every eToro crypto trader.
To trade Bitcoins seamlessly on eToro, follow this process:
Step 1: Start by creating a bitcoin trader account on eToro
Creating a trader account on eToro is free and relatively straightforward. They have a user profile that requires you to fill your name, address, email, trading experience, and income level. You will then email them a copy of your driver’s license for identity and address verification.
Step 2: Deposit Cash
After the user identity verification and account approval, you will need to activate it by making an initial deposit.
The minimum you can deposit is $50 and the minimum trading amount for Bitcoin is $25.
Step 3: Bitcoin Trading option 1 – Buy and sell manually
Head over to your user dashboard and click on Trade markets under the discover icon to access the crypto trading window. Alternatively search for Bitcoins on the search bar. Both strategies will lead you to Bitcoin tab and clicking on it gives you the buy or sell option.
Step 4: Trading Bitcoin option 2 – Copy trading
eToro is a pioneer social trading platform that allows you to copy other’s trade settings. The feature appeals most to beginners, part-time traders and anyone else that’s unsure of their trading skills.
By copying trading, you are essentially copying the trade entry price, exit price and risk management feature settings of the most experienced traders on the platform.
To copy trades, click on Copy Trades icon under Discover. The broker will provide a list of all Bitcoin pro traders whose trade settings you can borrow.
Investing vs Trading in Bitcoin
In reality, both options offer their own perks and benefits and the success in one over the other will depend on the individual executing the investments or the trading.
It is common to see individuals that are less attached to their portfolio and to their positions, this allows them to be better at trading than investing. On the other side, we will find people that can not deal with the pressure of actively trading in the markets, and that is not as used as losing money within trades (this can easily overwhelm anyone).
Trading is a more active approach to bitcoin trading that allows individuals to take advantage of the short term price movements. Investing, on the other hand, will allow individuals to profit from capital gains by buying and holding onto the digital currency for a long period of time.
If you had for instance invested in Bitcoin in 2017, you would have seen your money go from $2,000 a coin to over $19,000 in one single year.
If you would have been actively trading during this same period of time, it is very unlikely that you would have been able to catch the entire rally, mostly because you would have taken profits way to early in the process.
Another example would have been active trading during the bear market of 2018, where you would have been able to benefit from both long and short positions, while the investor would have had to deal with a change in price of more than 80%.
The best advice I can give is to analyze what works best for you and to go that way.
Pros and Cons of Bitcoin Trading
Just like with any other type of trading there are going to exists certain problematics with the asset class, for example
Pros of Bitcoin Trading
- Diversification and Hedge: In the past, the Gold market used to be the only asset that would offer protection when cash was not an option (geopolitical or economic reasons), but Bitcoin has created its own spot as a go-to safe haven for funds and asset managers due to its little correlation. Being the number one performing asset in the market proves why so many portfolios are now investing a portion of their funds in Bitcoin, the asset is so volatile that even with a considerably small investment the possible returns could easily beat all benchmarks.
- Global Adoption in Progress: One of the key factors that prove that adoption is taking a stronger pace is seeing states in the US allowing their residents to pay their taxes in Bitcoin.
- Momentum (like no other asset): Not many assets deliver the linear momentum that Bitcoin and the major cryptocurrencies provide. Whenever a real breakout or breakdown occurs in this market, it is pretty possible that its direction will prevail for a considerable period of time. If you analyze the price action of 2017 you will be surprised by the number of days where bitcoin was moving between $600 and $1,000 a day.
Cons of Bitcoin Trading
- Trending Blindly: If you know the concept of being a "spring chicken", then you can imagine what many Bitcoin traders went through during the 18 months of a bear market. Many individuals that enjoyed the beautiful upside from $2,000 to almost $20,000 in 2017, ended up losing their profit and even their capital as a result of not having a solid understanding of trading. Following a trend blindly without technical analysis or fundamentals backing your hypothesis is a perfect formula to lose money in the markets.
- Price Volatility: Cryptocurrencies are by far the most volatile assets in the market right now. If you analyze how they have performed since their inception, most of them have been close to the verge of disappearing before making comebacks straight out of Hollywood. While volatility can be of great advantage if you are position on the right side of the market, it can also have disastrous results if, on the other hand, the trade was wrong. It is key to drop any money-making mindset and to focus on capital preservation, this will ensure that your career will last and that you will have money available to trade when opportunities arrive.
- Speculation: Even though other markets like commodities are full of active speculators, their bets are usually based either on a technical or a fundamental thesis. When it comes to Bitcoin the overall market is driven by support and demand, but it has proven to be incredibly erratic due to it's sensitiveness to news and because of the commitment of traders being incredibly low at some points. Even though the basics of technical analysis has proven to work in order to successfully trade Bitcoin, it is key to keep in mind that BTC is an asset that does not follow conventional rules of market trading and that traditional principles can be wrong more than they are right.
- Bubble Danger: Seeing an asset doubling in price in a matter of weeks is enough for any financial analyst to start talking about a bubble. This type of price action is typically associated with unsustainable results that commonly end up with a burst. The most common narrative around cryptocurrencies is a fight between their early adopters and supporters against everyone calling them a faux or a bubble in the market. Keep in mind that even after 10 years of its existence, it is still a pretty new technology and that at this point any objection or support is purely speculative.
- The commitment of traders and market sentiment is not fixed: Most individuals and especially those new to trading fail to understand that while it may seem like the sky is the limit of an asset to rise, sentiment can tank incredibly fast. It is said that on bull markets assets take the stairs to go up in value, but when it comes to downturns they simply take out the nearest window and free fall.
Technology Behind Bitcoin (Blockchain)
The rush of new investors and traders in 2017 was so strong that many individuals who invested didn't even know what they were buying into, and it was not until later that they understood the basic concepts of Blockchain and Cryptocurrency as a whole.
Blockchain is the key technology behind all cryptocurrencies, including Bitcoin. Even though understanding it deeply can be complicated due to all the technicality behind it, the principal concepts can be simplified:
The Blockchain acts as a chain of records that are linked and secured using cryptography tools, the information of these records (blocks) is resistant to changes and it can not be modified. The whole chain of blocks turns into a ledger where new records are created and linked which each transaction, providing track of any movement inside the ledger.
The best analogy to explain how blockchain work is by comparing Microsoft Word and Google Drive:
This is a simple example, but it proves how blockchain can be adopted for other purposes besides cryptocurrencies.
What are the risks of Bitcoin Trading?
Following the price action witnessed in the markets throughout 2019 and early this year, it is almost certain that the number of interested traders and investors continues to rise. But even before looking at Bitcoin trading, we must first ask ourselves if these traders/investors are aware of the risks that such a volatile asset brings to their portfolio.
Even though Bitcoin has proven to be a real, money-making machine, it has also destroyed many portfolios and billions of market capitalization with its unpredictable downturns.
Keep in mind that cryptocurrency is a rather new technology that is yet to receive global adoption, which makes it incredibly speculative. Like with the case of any other tradable instrument, you are advised to only invest money that you can afford to lose.
Further, you need to learn how to constantly monitor your positions. It. for instance, is better to bail out on a position if the technical conditions are not on your side as you can always get back when the market conditions change.
As the adoption of cryptocurrencies continues to grow, the demand for trading and investing will follow closely. Keep in mind that even after the difficult period of time seen by this sector over the last 18 months, it would not be the first time that we see this market roaring after been heavily punished.
If you are a new trader the best advice I can give you is to be patient, becoming a trader is not an easy task and it is definitely not fast. It will take you months before you successfully cover the basic principles of trading, and especially the foundation for technical and fundamental analysis. Take your time to build solid bases, this will ensure a brighter future as a trader and a smoother learning curve.
Try to focus on learning all the details about one specific asset class and one strategy, avoid moving from market to market and also from strategy to strategy. Consistency is one of the keys that will make you a better trader, and it is also one of the requirements to become profitable.
***Note: Don't forget that even with the recent price action seen in the past few weeks, bitcoin will not be out of the bear market until it surpasses $11,000 per coin. There is still a lot of ground to cover before we can talk about a new bull market in place.
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Glossary of Cryptocurrency Terms
Who is in control of Bitcoin?
Bitcoin follows a decentralized model that is based on the blockchain technology. There is no organization or government behind the control of bitcoin as the ledger is managed by all the bitcoin owners in an open a transparent page.
Does Technical Analysis has an Edge on Bitcoin Trading?
Just like in most asset classes, the footprint of the traders buying and selling securities leave behind patterns that could be analyzed and interpreted as indicators of thing happening over another one. There are many different types of technical analysis, from statistical models to volume analysis. Technical analysis definitely has an edge, the real deal is to find the type of approach that is working the best at that moment.
How volatile is the Bitcoin Market?
It is probably the most volatile asset class in the world To put it into perspective bitcoin is up almost 170% YTD. The only other asset that is as volatile would be the future contracts of natural gas, commonly known as the widow maker of the commodity market. Please remember that even though this volatility opens space for possible profits if positioned appropriately, it can also translate into incredibly painful loses if the trade goes south and you don't manage it accordingly.
What is the best way to trade Bitcoin?
Many brokers like the ones mentioned above offer access to trade bitcoin as simple as if it was another forex pair, this allows executing to be lightning-fast and also cost-efficient. Besides utilizing a broker you could access the bitcoin market by acquiring the bitcoin directly from one of the exchanges. This will allow you to buy and sell but it will also be more difficult, more expensive and also less direct. If you are planning on actively trading you should aim for a broker instead of an exchange. If you are only planning on buying and holding the currency, then an exchange could result in a better option since you will be able to utilize the bitcoins you bought as a payment mechanism.
Is Bitcoin really Anonymus?
Part of the beauty of blockchain technology is that there is a record of every single transaction ever done with bitcoin. The anonymity comes from not knowing who the other transactions are from. In the grid, you will only see wallet numbers and the number of bitcoins exchanged.
Should I trade/invest in Bitcoin ?
Bitcoin and all the other cryptocurrencies are still speculative assets, this makes them incredibly risky to own. Should you invest in bitcoin? The answer is yes, but you need to additionally consider the right sizing for your investment. This is an asset that is so risky that you don't want to overexpose your money and your portfolio. Should you trade Bitcoin? It is an erratic asset and it is very difficult to predict its movements, there are other assets that are considerably easier to trade than bitcoin. If you are still interested the best advice I can give you is to keep a tight leash on your trades, if you are right on the trend direction chances are you will be holding a grand slam, on the other hand, you can easily destroy a portfolio faster than you can build another one.
How much can I make trading Bitcoin ?
Volatility in the cryptocurrency market offers its traders a very peculiar opportunity to take advantage of an asset that even when in a range-bound can easily move more than $500 in a day. This allows traders to profit from the long ups and downs, but it is important to keep in mind that these movements can be very erratic and difficult to time. In order to determine how much money you can make by trading bitcoin, it is important to understand the size of your account and also your risk appetite. Trading bitcoin will automatically label you as a high-risk speculator, with this profile in mind and without overexposing yourself to the markets a professional trader can easily get a 30% monthly return on their balance. Don't forget that as a beginner trader you should always aim for capital conservation and not to make money fast. You should be in the game aiming for the long run and you should not put your future in jeopardy just to make some quick bucks$$$. Just you make you want to go back in time and Invest in Bitcoin, a $1,000 investment in July 2010 would be worth more than $ 2.5 billion!! During this period of time, you could have gotten 125,000 coins for your money.