Trading is a form of investing and it is the opposite of the classic buy-and-hold investment strategy. The main goal of bitcoin trading is to buy and sell to make a profit. It sounds pretty straightforward – buy when the price is low and sell when the price is high; however, it’s not always that simple, and there are other ways to make a profit.
Bitcoin trading is much like Forex trading where you are buying and selling one currency with another in the hope of a price movement in your favored direction. This is known as a ‘pair’ and the most common pair is USD/BTC, but you can also find most major currencies as well as other cryptocurrencies.
Bitcoin is unique in that it can be traded without the use of a regulated exchange. Check where you live just in case, but you can basically trade it anywhere you can find a willing buyer and seller. A great example of this is through the site Local Bitcoins which gets buyers and sellers together. You can also use a bitcoin exchange like Bitstamp and Bitfinex to trade in a more traditional manner.
The next step up is to trade bitcoin through a broker company like you would Forex and stocks. Most of these use either Bitstamp or Bitfinex as the exchange and will add a margin on top of the buy and sell price which is known as the ‘spread’. Mainstream brokers include Magnr, Plus500, AvaTrade, and IG.
The main advantage of using a broker is that you can trade with leverage which can lead to greater profit, but also greater loss. Leverage is the term used to describe the ability to trade with more money than you have – basically borrow money, make the trade, pay the loan back and keep the profit, or take the loss. You can also ‘short’ a trade which means you predict the price of bitcoin will fall so you ‘borrow’ some bitcoin, and then when the price falls you buy at the lower price and return the borrowed bitcoin and pocket the profit (price difference * leverage). However, if the price rises, you lose.
Before attempting bitcoin trading, always check and make sure you understand all the trading conditions and fees as well as any costs associated with transferring money internationally. Banks are notorious for high fees in this area, and will also give you terrible exchange rates. You have been warned! To save money you need to look at transfer companies like HiFX, World First, and OzForex.
There are a huge number of resources available for trading, and some of them are so comprehensive that you could read for months and never make a trade. So, the best way is to start small and get a feel for it and then slowly learn some of the more advanced techniques.
Remember, never invest bitcoin you can’t afford to lose.