Before you continue exploring this article on Bitcoin Trading, we have the impression that you are already familiar with the basics of Bitcoin. If not, you may read our other tutorials before continuing this article. They are listed as follows:
What is Bitcoin?
WHAT CAN YOU DO WITH BITCOIN?
Trading Bitcoin involves risk. Digital gold has really pushed most traders and investors with its appetizing – and risky – volatility. And like any speculative market, Bitcoin has its own troubles when it comes to injecting bad news into traders’ heads.
But if you’re still interested, that’s what you need to know before you jump in.
What is the Bitcoin market?
The market where Bitcoin actively trades with other valuable assets is, in simple words, the Bitcoin exchange. It is similar to any other Forex market, where one buys currency with the others. But unlike fiat currencies, which are minted with confidence in the economic and financial situation of countries, Bitcoin is created without taking into account such influential factors. The digital currency is simply generated in a process called “mining”, where the miners simultaneously solve the block using mathematical calculations. The minted bitcoins are either stored or sold on regulated exchanges or to individuals for paper money.
Functioning of bitcoins market is similar to functioning of some commodity (coffee, gold, etc.) which is boiled/mined and sold on the markets, its price fluctuates depending on demand and supply.
Where do you trade bitcoin?
It is easier for us, not the miners, to get Bitcoin now than it was a year ago. All you have to do now is to be in the right country to buy and sell Bitcoins, where exchanges legally act as intermediaries for currency trading – something that also protects your funds from mismanagement and from external and internal attacks. These exchanges instantly convert your Bitcoin into USD or another currency and based on the price fluctuations between these two currencies, you can simultaneously sell and buy their assets and make good profits – a process we know as arbitrage.
Things needed to trade bitcoin – Bitcoin Exchange account
All you have to do is find a reliable Bitcoin exchange, register and provide the necessary personal information – it just gives you the right to buy and sell Bitcoin directly to the market.
When it comes to personal information, you need to know about certain KYC and AML requirements before you can subscribe. Under some recent regulations, governments have asked Bitcoin exchanges to follow certain identification procedures (such as those practiced by banks) when a user is required to provide their confidential information. These measures are in place to ensure that users do not use Bitcoin for anti-social activities such as money laundering, terrorist financing, drug trafficking, etc.
Reliable Bitcoin Exchange
We recommend that you recheck Bitcoin exchanges with their local authorities before registering. Check whether the Bitcoin Exchange is fully compliant and regulated and whether it has been involved in any malicious or unethical activity beforehand or not. You can also read the independent reviews available online before making any decision.
Some knowledge about forex trading
There will be risks, and there will be rewards – all you need is to be an attentive trading analyst. We therefore recommend that you learn a little about Forex strategies and indicators in order to predict possible price movements before making any trade. You can also use Bitcoinwisdom.io to updаte the prices on Bitcoin daily.
However, we do provide you with a basic list of glossaries that will help you understand a little bit of Forex. Here it is:
Bid price: This is the minimum price at which people on a particular trading site are willing to sell their Bitcoins.
Bid price: This is the highest price you are willing to pay for your Bitcoins.
Trading volume of the site: This is the number of units of money sold during a given period.
Market depth: This is the number of Bitcoins that people have put up for sale on the trading site and that have not yet been purchased (and so far nobody is willing to pay for them).
Speculator: This is someone who is trying to make a profit by buying Bitcoins at a low price and selling them at a higher price.
Arbitrage: This is the activity through which you try to make a profit by using the difference in price that can exist between different trading sites.
High Frequency Trading: This is an activity through which you try to make a profit by forecasting price changes in the short term.
Bubble: This happens when for some reason there is an increased demand for bitcoins; thus, the price rises and falls after a while due to the lack of a “foundation” for this demand. This happened between December 2013 and February 2104, and was repeated at the end of 2017.
Margin Trading: This is a risky form of speculation in which bitcoins trade on borrowed money. This allows for higher profit margins, but with the risk of forced liquidation.
Leverage Trading: A form of trading an underlying product or contract for difference that allows you to trade more than your initial investment.
Some brokerage companies offer 1x-100x leverage.
Precautionary measures and investment risks.
As we stated at the beginning of this article, investing in Bitcoin is really risky and not for weak nerves. You really need to be confident enough before you go in.
Most of this risk is attributed to unconventional Bitcoins price fluctuations. Unlike fiat markets where fluctuations are limited to a few pennies, Bitcoin sees a difference of as much as tens of hundreds of dollars. This can be perfectly illustrated by the fall of Bitcoin from about $20,000 to the current $9200. However, investors believe that the digital currency was in a speculative state, where it suffered from many manipulations from bad players. As the popularity grows, this manipulative tactic decreases and Bitcoin achieves stable value. At stable value, they mean fluctuations of $50-70 on a bad day.
To avoid such fluctuations, we recommend traders to shorten their funds as soon as possible. A small reward is still better than a maximum loss.
The safety of your wallet.
Another factor that shakes the Bitcoin industry is the constant attempts to hack into hot Bitcoin wallets. The curious case of Mt.Gox was the biggest example when $450 million of Bitcoin was stolen. Later the victims of such theft were many other exchangers, including BitStamp, BitFinex and many others.
It is therefore advisable to keep only a limited minimum required fund on your hot wallet while the rest is offline in a cold wallet.