Bitcoin is the most popular cryptocurrency with a market capitalization of $783 billion. This accounts for slightly over 39%of the $2 trillion cryptocurrency market. When people talk of cryptocurrency, they almost always mean bitcoin. Of course, there are many other cryptocurrencies out there, some having more fascinating use cases than others.
If you’ve always wanted to begin trading cryptocurrencies but aren’t sure where or how to begin, this article will help you get started. However, one aspect worth pointing out from the onset is that you don’t have to invest thousands of your cash to own crypto. When trading Bitcoin with leverage, you can trade Bitcoin worth thousands of dollars at a fraction of the total investment. Read on to learn more about this and other invaluable insights into bitcoin investing.
Understanding Bitcoin Price Movements
The price action of bitcoin is the most watched in the cryptocurrency space. As with any currency or asset, the price of bitcoin can either go up or down, at times significantly. To appreciate the price action of bitcoin, you must understand the following price drivers.
Bitcoin supply: Currently, bitcoin supply is at 19.01 million and it has a 21 million cap. As demand rises and supply remains capped at a maximum of 21 million, there is bound to be an upward pressure in the coin’s pricing over time.
Publicity: Whether good or bad, publicity can affect traders’ perception of the future of an asset including bitcoin. For instance, too much press on regulation or doubt on the value of bitcoin can dampen the asset’s demand and price. On the other hand, positive publicity such as increased acceptance of bitcoin in commercial transactions can push prices up.
Integration: As bitcoin gets integrated in payment systems, its popularity and use cases rise and so is its price.
Decide How You Want to Trade
Having understood the key price drivers of bitcoin, you should now proceed to choose how you want to trade. There are several strategies and styles of trading bitcoin. Here are the common ones you’ll likely encounter.
This strategy involves a trader opening a position and closing it within a day. Your exposure won’t extend to overnight holding hence you’ll not have to pay overnight funding charges. If you choose day trading as your strategy, your profit will depend on the small intraday price movements bitcoin makes.
There are two pronounced trends in bitcoin trading-bullish and bearish. If the trend is bullish (prices going up) you go long. This means, you buy bitcoin at a lower price and hope to sell it at a higher price later. On the other hand, if the trend is bearish, you go short. Here, you open your position by selling bitcoin and wait for the prices to fall so you can buy.
As a trend trader, you must be watchful. When the trend begins to slow down or reverse, you must close your position, take profit, and prepare to open a new position when the new trend emerges.
To minimize losses due to unfavorable price action, you can hedge. Bitcoin hedging involves taking an additional position opposite your current open position. For instance, if you have a long position, you can hedge by taking a short position. If the price of bitcoin falls, your short position will record a gain that will offset the losses on your long position.
Buy and Hold (HODL)
You can buy bitcoin and HODL or hold for the long-term. The assumption here is that the longer you hold the higher the prospects that you will benefit from substantial prices increase over time. Adding a stop loss as part of your HODL strategy can help minimize losses in case your long-term projections go the other way and you want to close your position.
Choose How You Want to Get Exposure
You can get bitcoin exposure in a couple of ways. For instance, you can trade through an exchange or via bitcoin derivatives.
Trading Through an Exchange
If you want to buy and hold bitcoin, trading through an exchange is the best approach. This will give you direct ownership of bitcoin. However, when buying from an exchange, check its regulation status, the responsiveness of its support team, fees and the limits for funding and withdrawal transactions.
Exposure Through Bitcoin Derivatives
Using a contract for differences (CFD), you can trade bitcoin without owning it outrightly. CFDs allow you to take a short or long position depending on your assessment of the price action.
Established trading platforms such as PrimeXBT give you a unique advantage of trading CFDs with leverage. This means, you’ll only need to put down a certain percentage of the total trade -known as margin-and the platform will take care of the rest to give you the maximum exposure. Margin trading can potentially amplify your profits but can also deepen your losses. As a beginner, you must first understand CFDs and margin trading before diving in.
Trading bitcoin is not difficult if you take time to understand the ropes. Ensure you get a good grasp of what bitcoin is and the factors that influence its pricing before choosing a trading strategy. Depending on your preferences, you may want to get exposure through an exchange or bitcoin derivatives. Whichever the case, ensure you monitor your positions carefully and exit to take profit or cut a loss. Do not hold on to a losing position if you have the option to exit.