How to trade Bitcoin

January 5th, 2021

Are you ready to start trading Bitcoin?

That’s great!

Before you run off and start trading your crypto though, it’s important to consider a Bitcoin trading strategy.

While the Internet and blockchain have made trading accessible to anyone with a smartphone, it usually doesn’t make you rich overnight like depicted in Hollywood films.

The crypto market can be volatile with traders experiencing huge drops or leaps when trading Bitcoin, but this contributes both to its appeal and risk.

This article will outline:

- The goal of Bitcoin trading

- Methods of Bitcoin trading

- Benefits of Bitcoin trading

- Risks of Bitcoin trading

- Types of Bitcoin trading strategies

The goal of Bitcoin trading

Ultimately, Bitcoin trading is the buying and selling of Bitcoin although it’s somewhat more complicated than that. The price of Bitcoin fluctuates so it’s possible to benefit from the volatility of the market.

Buy low, sell high

The aim of Bitcoin trading is to buy Bitcoin when the price is low and sell it when the price is high. That means Bitcoin is purchased with a low amount of fiat (eg. AUD) currency for a high amount of Bitcoin and is sold for a high price, so an investment receives a high amount of fiat currency for a low amount of Bitcoin.

Methods of Bitcoin trading

Most Bitcoin trading is done through a cryptocurrency exchange, like Cointree.

Cryptocurrency exchanges

A cryptocurrency exchange is a digital currency exchange platform where Bitcoin can be traded to fiat currency and vice versa in a virtual marketplace. It’s similar to a stock exchange, but the focus is on cryptocurrencies rather than stock trades. Exchanges allow buyers and sellers to find each other making the trading process easy and ask for a small fee for their services. Cointree not only allows you to trade Bitcoin but other popular cryptocurrencies.

Differences in cryptocurrency exchanges

It’s important to note that different exchanges offer different services. Even if two exchanges offer the same cryptocurrency, such as Bitcoin, the exchanges can vary in security, processing fees, exchange rates and reliability.

Advantages of trading on a cryptocurrency exchange

The great thing about cryptocurrency exchanges is that they offer competitive pricing and some exchanges are made as beginner friendly as possible for people who are new to Bitcoin trading.

Benefits of Bitcoin trading

The benefits of Bitcoin trading include cryptocurrency being a decentralised asset, so they are less likely to experience interference by governments or banks. Bitcoin isn’t traded on a traditional exchange so there are no time constraints, you can trade at any time of the day or night.

More inclusive

Anyone with an internet connection, a smartphone and some disposable income can get involved in Bitcoin trading. Bitcoin has broken down international barriers to make it a global economy and some exchanges only require a few dollars to trade in Bitcoin.

You don’t need to buy one Bitcoin to get started as Bitcoins are divided into millions of parts with the smallest unit of Bitcoin known as a “satoshi”. So for people new to Bitcoin, it’s possible to buy a small amount of Bitcoin and practice trading with it in order to familiarise themselves with the trading process. Exchanges usually charge relatively low fees meaning trade can be done at an affordable price.

Decentralised system

Bitcoin’s decentralised system means that the price is less likely to be affected by governments or banks. Of course, the price of Bitcoin can still fluctuate but its market is based on supply and demand.

Bitcoin supply

It’s expected that by 2040, all Bitcoins will have been mined, but the availability of Bitcoin depends on the rate at which they enter the market and whether people choose to hold onto their Bitcoin.

Risks of Bitcoin trading

There is always a risk when it comes to investing or trading in any asset and the Bitcoin market is still relatively new for many. That’s why it’s important to consider your Bitcoin trading strategy, read up on the market from different sources and conduct regular analyses.

It’s also wise to never buy more Bitcoin than you can afford. The Bitcoin market is volatile and while that means huge gains can be made, it also means sharp losses too if you buy or sell at the wrong time.

You should also consider having a secure Bitcoin cold wallet that you can use to store your Bitcoin, and ensure that your password is kept safely. Never give your password out to anyone or leave it lying around where it could potentially be found.

Types of Bitcoin trading strategies

There are different Bitcoin trading strategies depending on what your goal is, below are a few strategies used to trade Bitcoin.

Day trading – this involves buying and selling Bitcoin on the same trading day. Day trading is a strategy that is based on anticipating short-term movements and closing out all positions at the end of the day. This is a strategy for responding to short-term opportunities in the Bitcoin market based on developing news or emerging patterns.

Swing trading – this is where positions can be held for a couple of days or a few weeks and is based on market movements. This strategy involves the trader using technical analysis and selling their Bitcoin when they see trends start to slow. Swing trading is riskier than day trading as the trader holds their positions for longer periods of time but also requires less time commitment as the trades can last for many weeks. This is a strategy for capitalising on opportunities from market momentum.

Scalping – this strategy involves placing trades over very short periods, sometimes mere minutes. Traders can capitalise on minute market movements. It’s a good idea to have an exit strategy when scalping Bitcoin as trading losses could counteract any gains made. This strategy is for making small, continuous profits rather than waiting for a significant breakout.

Automated trading – this is where the trader programs their trade entries and exits which is executed by a computer. One of the advantages of automated trading is that it takes the emotion out of trading and the rules that the person creates surrounding entry and exit are set once they are programmed. This is a strategy for those who prefer to be passive traders.

Disclaimer of Liability

Information provided is for educational purposes and does not constitute financial product advice. You should obtain independent advice from an Australian financial services licensee before making any financial decisions.