How to Prepare for Bitcoin Trading
Bitcoin trading is booming. As the currency is gaining value, more and more investors are joining in. Success does not come to everyone, though. Sharp changes could work for or against you. Here are five key insights from experts.
Learn About Market Drivers
The price of BTC is moved by a range of factors. First, the restricted supply: the number of coins in circulation is capped at 21 million. This is how many Bitcoins will ever be available on the market. The limit is projected to be reached in over a century. As the supply is limited, increased demand entails a price hike.
The second driver is publicity. Negative information in the media causes key characteristics of the coin to deteriorate. This concerns its value, security, and longevity.
Thirdly, the future of BTC depends on its adoption by banks and payment systems. If Bitcoin becomes widely accepted, its price will surge. Finally, fundamentals like new legislation or macroeconomic announcements also sway the prices.
Pick a Style
Day traders open and close all positions within the same day. No BTC positions remain active between the sessions, so no overnight fees apply. In this scenario, you can profit from short-term changes in the price. As Bitcoin is highly volatile, this is feasible.
Trend traders open positions matching the current trend. You buy BTC in a bullish market and sell in a bearish environment. This continues until the trend weakens.
Bitcoin hedgers open opposite positions simultaneously. This method is preferable if the market situation is shaky. For instance, if you worry about a possible fall in Bitcoin value, you could short-sell CFDs on BTC. If the market indeed moves against you, you will be able to compensate for the loss.
Choose Type of Exposure
Traders can profit from BTC directly or indirectly. In the second case, you may buy and sell CFDs or the Crypto 10 Index. Contracts for Difference are derivatives linked to the asset but requiring no ownership. The index gives exposure to 10 different coins at the same time. It reflects their cumulative performance and moves in line with the underlying value.
Bulls or Bears
You can buy Bitcoin with a long position, and sell it via shorting. Bulls purchase the asset when its price is expected to rise. Bears do the opposite in anticipation of a decrease. Whichever position you open, it is essential to manage the risks.
Stops and Limits
Stop are execution triggers: once the price reaches the specified level, the position is closed. These may be static or trailing — i.e., moving along with the price. The result could differ from the preset levels due to slippage. The only solution is the ‘guaranteed stop’. If the trigger price is reached, the position is closed, but you are charged a fee.
Plan wisely and hedge risks. No strategy is guaranteed to be lucrative. The financial market is beyond any individual’s control, and it may always move against your expectations.