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How to trade Bitcoin: investment and trading options

How to trade Bitcoin
All over the world, most governments and central banks issue, print, control and regulate the use of their currencies. In South Africa, the South African Reserve Bank issues and regulates the South African Rand (ZAR). In the United States, the Federal Reserve (Fed) acts as the central bank while in the UK, the Bank of England issues and regulates the Pound Sterling (GBP). The paper notes have no intrinsic value as their values are assigned by the central authority. They are therefore referred to as ‘fiat currencies’.

The advent of the internet has reduced our world into a global village. Due to tourism, e-commerce, international trades or even speculators; the demand for foreign exchange is very high. Today, the forex market is the biggest of all the financial markets in the world. Forex trading is a big business for banks, financial institutions and even individuals. Bitcoin was born out of the desire to break the control of central banks and create a unified digital currency that will be easily accessible and accepted by anyone residing anywhere in the world.

Content:
  1. What is Bitcoin?
  2. Bitcoin trading in 2022
  3. Bitcoin Investment in 2022
  4. Bitcoin futures
  5. Trading Bitcoin CFDs with InvestBy
  6. Bitcoin trading strategies
  7. Why trade CFDs in Bitcoin?
  8. Summary
  9. FAQs: How to trade Bitcoin online

What is Bitcoin?

Bitcoin is a digital currency created in 2009 by Satoshi Nakamoto. Unlike fiat currencies, it is not issued, controlled or regulated by any central authority. It is created and spent on its own decentralized network known as a blockchain. A blockchain is basically a distributed record of transactions that is encrypted, time-stamped, and irreversible. Bitcoin mining is the process by which new Bitcoins are created by solving complex math problems computers that verify transactions and maintain the network. Bitcoin has a finite supply set at 21 million coins but at the moment, over 18 million coins have been mined.

Bitcoin is the first cryptocurrency that utilized blockchain technology. Altcoins is the general name given to other cryptocurrencies that were launched after Bitcoin. Today, there are thousands of Altcoins; some of the popular ones are Ethereum, Bitcoin Cash, Tether, Dash coin, etc.

Bitcoin trading in 2022

This is the business of buying and selling Bitcoin in order to make a profit. The most common ways of trading Bitcoin are trading on Cryptocurrency exchanges and trading CFDs in Bitcoin.

Exchange trading

If you want to purchase Bitcoins, you can buy them from a cryptocurrency exchange. There are many crypto exchanges; some of them are Binance, Coinbase, Coinmama, etc. Most exchanges offer a trading platform where the cryptocurrencies are paired and traded against other currencies. To start trading Bitcoin, first, register and open an exchange account, then make a deposit. The overall aim of Bitcoin trading is to buy low and sell high. If you will be actively trading, then, you need to maintain hot wallets with the exchange.

Contract for differences (CFDs)

CFDs are financial contracts that allow traders to make potential profits by predicting the price movements of the financial assets without owning them. So, with Bitcoin CFDs, a trader will only speculate on Bitcoin prices without owning the digital assets. No need for a Bitcoin wallet because it is cash-settled and you will not own Bitcoins. Unlike futures which are traded on exchanges, CFDs are traded as over-the-counter derivatives.

CFD trading is usually offered by online financial services providers better known as brokers. These brokers stipulate the trading conditions, implement the hardware and software infrastructure and also provide the trading platforms on which the price of the cryptos and any other financial instrument are posted in real-time. Being a derivative, a Cryptocurrency’s price posted on the broker’s platform is obtained from exchanges in real-time.

For every CFD asset, buy and sell prices are always quoted. First of all, the trader will carry out a market analysis to determine the price movements of his asset of interest. If a decline is predicted, he sells the assets and buys when a price increase is forecasted. So, for Bitcoin, the trader will be buying Bitcoin on the platform if he predicts a surge in price but will be selling Bitcoin if his analysis forecasts a price decline. 

Bitcoin Investment in 2022

Just like any money, you can buy Bitcoin; store it in your wallet for future sales. In fact, there are numerous Bitcoin millionaires who bought the token at cheaper rates, held it for long periods, and later sold it at a huge profit. Buying and holding Bitcoin is the strategy of investors. Bitcoin prices fluctuate a great deal. According to Wikipedia, 1 Bitcoin (BTC) was less than $0.01 in May 2010, but rose to $2,000 in May 2017 and $19,783.06 in December the same year. Bitcoin value dropped to $3,300 in December 2018 but hit a record high of $60,000 in April 2021.

To buy and hold Bitcoin or other crypto coins, you need cryptocurrency wallets to store the crypto coins. A cryptocurrency wallet is a place where the private and public keys of your crypto transactions are kept safe. A cold wallet is used for holding cryptos offline as it is not connected to the internet. It is best for crypto investors. A hot wallet is connected to the internet; it is best for cryptocurrency traders as it is easier and faster to access but it is susceptible to attacks by cybercriminals.

Here are the types of wallets available:

• Digital wallet: This is a software, app, online service, or electronic device that holds the access keys and allows you to manage and store your cryptocurrencies. Be careful with mobile wallet apps, some of them are operated by scammers.

• Paper Wallet: This is an offline wallet in form of a printed piece of paper that contains the public and private keys for your cryptocurrency transactions. If stored properly, it can be safer than digital wallets.

• Hardware wallets: These are physical electronic USB devices that are capable of storing the crypto access keys offline. You can buy it from the markets and use it to store your crypto keys for long periods of time. 

Bitcoin futures

A futures contract is an agreement to trade a defined quantity of a given financial instrument at an agreed price and on a future date. Since 2017 when it was launched by the Chicago Mercantile Exchange (CME), Bitcoin futures have been trading in the exchange and it is cash-settled. Bitcoin futures are contracts to buy or sell Bitcoin at a future date and price. Miners can use Bitcoin futures to hedge against price drops while investors may use it to hedge against losses.

Bakkt and Intercontinental Exchange (ICE) also offer Bitcoin futures contracts but the difference is that cryptocurrency traders undertake physical delivery. Bitcoin futures can be seen as both investment and trading.

Trading Bitcoin CFDs with InvestBy

InvestBy is a CFD broker that offers CFD trading of more than 350 financial assets in stocks, commodities, indices, forex markets and cryptocurrencies. It is registered in Belarus but has clients from several countries. The broker offers its WebTrader, mobile app as well as the popular MT4 trading platforms to all its clients.

Follow the steps below to trade CFDs in Bitcoin as well as other CFDs with InvestBy:

• Signup for a new account by completing the registration form.

• Upload your verification documents: ID card and a recent utility bill.

• From your bank account, e-wallet, or any of the deposit options, transfer your trading capital into the new account. • When your account is approved, choose a trading platform. The options are: InvestBy WebTrader, InvestBy mobile app, MT4 desktop, MT4 WebTrader, MT4 android or iOS app.

• Launch or download your chosen platform and log in with your account details. Find Bitcoin or any other asset of your choice.

• Open a Bitcoin trade: you will be selling if you are expecting a price decline but will be buying Bitcoin if you are expecting the price to go higher.

• Close the trade at your own time. This action terminates the contract and your account balance is automatically updated with respect to the trade results. You will make potential profits if your prediction is right but will suffer losses if you are wrong.
Note that trading CFDs poses a high risk to your trading capital especially if your Bitcoin trades are leveraged. It pays to understand the risks involved, undergo some training, or seek independent advice before trading Bitcoin or any CFD asset.
 

Bitcoin trading strategies

The major task confronting traders is; knowing the right time to buy or sell Bitcoin or other digital assets. The Bitcoin market is very difficult to predict because it is a volatile market; but other popular markets are volatile too as the prices keep fluctuating endlessly. In order to determine how to approach the markets, a trader who wishes to succeed must have a trading plan. So, what is a trading plan? It is a comprehensive blueprint that defines a trader’s objectives, trading strategies, entry and exit rules, risk management strategies, goals, and personal targets.

A trading strategy is a method or system of determining when and how to trade Bitcoin or any other asset. It is often a component of the detailed trading plan. A Bitcoin trading strategy will tell the trader when to trade Bitcoin and whether to buy or sell. Most strategies are based on fundamental or technical analysis. Fundamental analysis researches and evaluates the social, political, financial factors, etc that affects the value of an asset while technical analysis predicts the price direction by analyzing past market data.

Below are some popular strategies deployed by Bitcoin traders:

Day trading

This is a popular Bitcoin trading strategy in which the traders open and close all trade positions within a day. Normally, day traders use technical analysis to get their signals, place their trades and close it before the end of the day.

Scalping

This is a high-risk trading strategy that is fast-paced but may have good profit potential. The trader opens and closes his trades within minutes or even seconds. The overall objective is to make small profits from the small price movements of the traded asset. Trading Bitcoin using this strategy is best in trending markets but it incurs multiple trading fees because the trader opens many trades in one trading session.

Swing trading

This trading strategy identifies market trends that last for a few days, so swing traders open a trade and maintain it between a few days to a few weeks. Traders may thoroughly analyze the market to identify a good entry point and ride the swing for days or weeks. Swing trades incur swap fees caused by overnight open positions.

No matter the strategy utilized, there is no foolproof formula that always generates profits. Bitcoin trading is a high-risk venture and you may lose part or all your invested capital. 

Why trade CFDs in Bitcoin?

Requires less capital

CFDs are traded on leverage which is a tool that gives the trader higher market exposure by allowing him to open trade positions larger than his account balance. So, if a CFD trader has 2,000 ZAR and his broker offers him a leverage of 1:5, he can open trades worth 10,000 ZAR. This makes CFDs more affordable but it increases the risk involved. If the trade goes against the opened position, leverage also equally multiplies the potential losses.

More trading opportunities

Unlike normal Bitcoin investment which is aimed at buying low and selling high, CFDs offer potential profits in both soaring and declining markets. When the pricing is falling, the trader simply opens a selling position but opens a buying position when the pricing is going higher.

Convenience

Investing in Bitcoin requires storage in wallets that may be lost or stolen. With CFDs, all you need is a computer or phone which is connected to the internet. 

Summary

Bitcoin is the most popular digital currency and also has the greatest value. If you want to invest and own it, you can buy it from a Bitcoin exchange and store it in cold wallets. But, if you are interested in active Bitcoin trading, then, you can trade on exchanges or trade Bitcoin CFDs. In trading Bitcoin via CFDs, you are merely speculating on its fluctuating prices and not actually purchasing or selling the crypto coins.

CFDs are offered by online brokers on their platforms. It is virtually impossible to absolutely predict the market price direction so; you need a plan and strategies. Day trading, scalping, and swing trading are some of the Bitcoin trading strategies used by traders. Bitcoin trading via CFDs is convenient, requires less capital, and presents multiple opportunities leading to high-profit potentials.

InvestBy is a well-established financial services provider based in Belarus. Bitcoin trading as well as over 350 other CFD assets are offered via its trading platforms. Trade execution time is less than a second; thanks to the modern software and hardware infrastructure deployed by the broker. Spreads are tight with no hidden commissions. Trading tools like market sentiment, etc are provided. Newbies can create a demo account and practice with the educational tools provided. Investby services are suitable for all investors and traders including retail clients, professional traders and institutions. You are free to come with your trading style, trading robot or other trading tools and systems. 

FAQs: How to trade Bitcoin online

How do I start trading Bitcoins in the South Africa?

You can buy and sell Bitcoin on a crypto exchange by speculating on the prices of Bitcoin. You can also trade Bitcoin future contracts from a futures exchange such as the CME. Bitcoin trading can also be done via CFDs; in this case, you buy or sell CFD contracts on brokers’ platforms. 

Can I invest $100 in Bitcoin?

Of course, Bitcoin trading and investment can be done in fractions. For example, you can trade 0.005 Bitcoins or smaller volumes. 

Is trading Bitcoin profitable?

Yes, it is profitable but highly risky because you can easily lose your invested capital. But, to stand a chance of making profits in Bitcoin trading, do the following:

• Take out time to learn about Bitcoin trading and how it works.
• Create a trading plan and strategies.
• Have clearly defined risk management strategies.
• Always follow Bitcoin news.
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