Bitcoin trading can be extremely profitable for professionals or beginners. The market is new, very fragmented with huge spreads. Arbitrage and margin trading are available everywhere. As a result, many people can make money by exchanging bitcoins.
The history of bubbles and bitcoin’s volatility may have done more to attract new users and investors than any other aspect of the common currency.
Each Bitcoin bubble creates a hype that brings the name Bitcoin into the news. The attention of the media creates more interest and the price rises until the hype disappears.
When the price of Bitcoin increases, new investors and speculators want their share of profits. Because Bitcoin is global and easy to send anywhere, bitcoin trading is simple.
Bitcoin trade has a very little impediment to entry compared to other financial instruments. If you already have bitcoins, you can start trading almost immediately. In many cases verification is not even necessary for trade.
If you are interested in Bitcoin, there are many online trading companies that offer this product as a contract for difference or CFD.
Avatrade offers leverage of 20 to 1 and good trading conditions on its Bitcoin CFD trading program.
Why change Bitcoin?
Before we show you how to trade Bitcoin, it is important to understand why Bitcoin is both exciting and unique.
Bitcoin is worldwide
Bitcoin is not a fiat currency, which means that the price is not directly related to the economy or policy of a single country. Throughout history, Bitcoin’s price has responded to a wide range of events, from the devaluation of the Chinese currency to the control of Greek capital.
General economic uncertainty and panic have led to a number of earlier Bitcoin price rises. Some say, for example, that capital controls in Cyprus have drawn attention to Bitcoin and raised the price during the 2013 bubble.
Bitcoin treatments 24/7
Unlike stock markets, there is no official exchange of Bitcoin. Instead, there are hundreds of exchanges around the world that work 24/7. Because there is no official exchange of Bitcoin, there is no official Bitcoin prize. This can create arbitrage opportunities, but most of the time the trade remains in the same general price range.
Bitcoin is volatile
Bitcoin is known for its rapid and frequent price movements. Looking at this BPI CoinDesk daily chart, it is easy to spot multiple days with fluctuations of 5% or more:
The volatility of Bitcoin creates interesting opportunities for traders who can reap quick profits at any time.
Find an exchange
As mentioned earlier, there is no official exchange of Bitcoin. Users have many choices and must consider the following factors when choosing an exchange:
Regulation and trust – Is the stock market reliable? Could the exchange fail with money from customers?
Location – If you need to deposit a fiat currency and require an exchange that accepts payments from your country.
Cost: what percentage of each transaction will be charged?
Liquidity – Large operators need Bitcoin exchange with high liquidity and good market depth.
Based on the above factors, the following exchanges dominate the Bitcoin FX market:
Bitfinex – Bitfinex is the world’s first Bitcoin exchange in terms of transaction volume in USD, with approximately 25,000 BTC traded per day. Customers can switch without verification if cryptocurrency is used as payment method.
Bitstamp – Bitstamp was founded in 2011 and is one of the oldest Bitcoin exchanges. It is currently the second largest stock exchange in the world based on the USD volume, with just under 10,000 BTCs traded per day.
OKCoin – Bitcoin exchange based on China but traded in USD.
Coinbase – Coinbase Exchange was the first regulated Bitcoin exchange in the United States. Trading around 8,000 BTC every day, it is the world’s fourth largest stock market based on the USD volume.
Kraken – Kraken is the number 1 trade fair in the field of transaction volumes in euros at ~ 6,000 BTC per day. It is currently a top 15 exchange in terms of USD volume.
Bitcoin trade in China
Worldwide Bitcoin trade data show that a very large percentage of the total volume of price transactions comes from China. It is important to understand that Chinese stock markets dominate the market, while the above exchanges simply follow the example of China.
The main reason that China dominates Bitcoin trading is that the financial regulations in China are less strict than in other countries. As a result, Chinese exchanges can offer leverage, loan and term options that are not traded in other countries. Moreover, Chinese exchanges do not charge any costs, so bots are free to act to create volume.
If you want to know more about Bitcoin trading in China, this video from Jihan Wu from Bitmain provides additional information.
How to exchange Bitcoin
Kraken will be used as an example for this guide. The process and the basic principles remain the same for all exchanges.
First create an account on Kraken by clicking on the black registration box in the right corner:
You must confirm your account by e-mail. Once your account has been confirmed and your connection has been established, you must verify your personal information. All Bitcoin exchanges require different levels of authentication as required by the AML and KYC laws. Below are the first three verification levels:
Once your account has been verified, go to the ‘Financing’ tab. You should see something similar to the screenshot below. Select your financing method on the left:
Kraken offers many deposit methods, which are listed here:
EUR SEPA Deposit (Free) – EEA countries only
EUR Bank Wire Deposit (€5) – EEA countries only
USD Bank Wire Deposit (Free until 3/1/2016, then $5 USD) – US only
USD SEPA and SWIFT Deposit (0.19%, $20 minimum)
GBP SEPA and SWIFT Deposit (0.19%, £10 minimum)
JPY Bank deposit (Free, ¥5,000 deposit minimum) – Japan only
CAD Interac Deposit (Free until 3/1/2016, then 1%, $10 CAD fee minimum, $5,000 CAD deposit maximum)
CAD EFT Deposit (Free until 3/1/2016, then 1%, $10 CAD fee minimum, $50 CAD fee maximum, $10,000 CAD deposit maximum)
Deposits made using the traditional banking system last one to three days. Bitcoin deposits require six fixings or about one hour.
Now navigate to the “Trade” tab. By using the black bar at the top of the page, you can change the exchange pair. In this example, we use XBT / USD. We want to buy bitcoins, so let’s place an order. Go to the “New order” tab.
Let’s say I deposited $ 300 in my account with a USD transfer. In the example below, I have sent an order of 0.5 bitcoins (XBT) for a price of $ 370 per bitcoin.
Check the black bar at the top and you will see that the last exchange price was $ 383.17.
Why submit a purchase order for $ 370 per bitcoin (XBT) and not for $ 383.17? An order lower than the current price can be submitted if the price of Bitcoin is expected to fall. In this case, because my order is lower than the other offers in the order book, I do not receive my order for 0.5 bitcoin immediately. Placing an order at a specified price is called a _limit._ order. Before placing an order, check the order book of your trade pair.
The following booklet shows that the highest bid is $ 382.5 per bitcoin, while the lowest sales order is $ 384.07 per bitcoin.
By using the order form there is also an option for “Market”.
A market order in this case would result in a purchase order for XBT at the lowest available sales order price. Using the backlog above, a market order of 0.5 XBT XBT would buy 0.5 XBT for $ 384.07. In the case of the sale of bitcoins, a market order would sell bitcoins for the highest possible price based on the current purchase book – in this case $ 382.5.
Bitcoin trading is exciting because of Bitcoin price movements, global nature and 24/7 trading, but it is important to understand the many risks associated with Bitcoin trading.
Leave money on an exchange
Perhaps one of the most famous events in Bitcoin history is the collapse of Mt. Ganaarx. In the early days of Bitcoin, Gox was the largest Bitcoin exchange and the easiest way to buy bitcoins. Customers from around the world were happy to send money to Mt. Japanese bank account from Gox to just get bitcoins.
Many users have forgotten one of the key features of Bitcoin – managing their own money – and have left more than 800,000 bitcoins in Gox accounts. In February 2014 Gox suspended his recordings and customers could not withdraw their money. The CEO of the company claims that the majority of bitcoins had been lost due to an error in the Bitcoin software. Customers have still not received money from their Gox accounts.
The catastrophic collapse of Gox highlights the risk that every trader will take by leaving money at a stock exchange. The use of a regulated Bitcoin exchange such as Kraken can reduce your risk.
Your capital is in danger
Do not forget that, just as with any kind of action, your capital is in danger. New traders must start trading with small amounts or negotiate on paper to practice. Beginners also need to learn Bitcoin trading strategies and understand market signals.
Bitcoin Trading Tools and resources
Cryptowatch & Bitcoin Wisdom – Live price graphs of all major Bitcoin exchanges.
Bitcoin charts – More price charts to help you understand Bitcoin’s price history.
bitcoinmarkets – A sub-reddit of Bitcoin trading. New users can ask questions and get advice on trading techniques and strategy.
TradingView – trading community and a great resource for trading images and ideas.