Date:
04th Sep 2020
Author:
CryptoGT
A Quick Start Guide to Trading Bitcoin
With a finite supply of 21 million coins, Bitcoin (BTC) is considered a great hedging tool against inflationary assets. The decentralised currency remains untouched by the effects of monetary and fiscal policies that impact fiat markets, making it a great way to diversify portfolios.
Bitcoin’s high volatility provides good opportunities for traders, but at the same time, it makes it a risky asset to speculate with. Contracts for Difference (CFDs) are derivative instruments that allow investors to take advantage of the rapid upward and downward trends of the BTC market, against another asset class. The other asset could be a fiat currency, like USD or EUR, or altcoins like ETH and XRP.
Bitcoin CFDs can also allow traders to use its safe-haven properties and hedge against downturns in markets like oil and precious metals. All this can be done without the need to physically own BTC coins, thereby removing the fear of wallet hacks that crypto exchanges occasionally face.
Here is a quick summary of how to go about trading Bitcoin CFDs.
Bitcoin’s high volatility provides good opportunities for traders, but at the same time, it makes it a risky asset to speculate with. Contracts for Difference (CFDs) are derivative instruments that allow investors to take advantage of the rapid upward and downward trends of the BTC market, against another asset class. The other asset could be a fiat currency, like USD or EUR, or altcoins like ETH and XRP.
Bitcoin CFDs can also allow traders to use its safe-haven properties and hedge against downturns in markets like oil and precious metals. All this can be done without the need to physically own BTC coins, thereby removing the fear of wallet hacks that crypto exchanges occasionally face.
Here is a quick summary of how to go about trading Bitcoin CFDs.
Leverage is one of the first concepts to understand before trading BTC CFDs. With leverage, CFD brokers offer traders opportunities to open positions much larger than the capital in their trading account. This means trading on margin, allowing them to magnify their returns with the investment of only a fraction of the cost of the total position. However, leverage can also magnify losses due to the same reason, if the market moves in the opposite direction.
To open a CFD account, traders need to deposit a small percentage of their total position value. This is called the initial margin. This sum acts as collateral for brokers to maintain the trader’s open leveraged positions. A margin call is issued if the sum falls below a specific level, known as the maintenance margin. Opening a CFD account doesn’t take long. After the KYC formalities, traders can add funds and open positions on their platform.
To open a CFD account, traders need to deposit a small percentage of their total position value. This is called the initial margin. This sum acts as collateral for brokers to maintain the trader’s open leveraged positions. A margin call is issued if the sum falls below a specific level, known as the maintenance margin. Opening a CFD account doesn’t take long. After the KYC formalities, traders can add funds and open positions on their platform.
After opening a CFD account, it’s time to figure out the trading plan. Firstly, traders need to decide which BTC pairs they want to trade in. This includes doing some research on what drives the prices of these pairs and to what extent their movements are correlated. Bitcoin price is driven by factors like:
A few tips to consider while deciding on a trading plan include:
- Geo-political uncertainty
- Fiat market volatility
- Changes in or new introductions to the Bitcoin network
- Bitcoin mining developments (such as the Bitcoin halving event)
- News concerning industry adoption, and even bad press
A few tips to consider while deciding on a trading plan include:
- Your risk/reward profile: This helps decide the leverage ratio, spreads, position size and what percentage of profit is needed to justify potential losses.
- Short- and long-term goals: Does the chosen BTC pair provide enough opportunities to fulfil these goals?
- Assets to trade: Only BTC or other crypto pairs as well?
Based on the trading goals, traders need to formulate a trading strategy.
For instance, a day trading strategy is apt for someone who wants to take advantage of daily short-term price movements in BTC, which occur as a reaction to news developments. Swing trading could provide opportunities from changes in market momentum.
For instance, a day trading strategy is apt for someone who wants to take advantage of daily short-term price movements in BTC, which occur as a reaction to news developments. Swing trading could provide opportunities from changes in market momentum.
The trading platform is a vital aspect of tackling BTC volatility and executing trading strategies at the right instant. Multi-asset platforms like MetaTrader 5 provides a huge range of technical analysis tools, like charts, indicators, analytical objects, to identify price trends. Comparing timeframes can allow traders to look for emerging trends and patterns.
MT5 provides multiple order types to let traders gain greater control over their positions. This includes highly important risk management tools, like stop-loss and take-profit orders. Stop loss allows traders to set pre-determined price levels at which their CFD positions will get closed. Take profit allows traders to salvage any profits before the markets move in an unfavourable direction.
MT5 provides multiple order types to let traders gain greater control over their positions. This includes highly important risk management tools, like stop-loss and take-profit orders. Stop loss allows traders to set pre-determined price levels at which their CFD positions will get closed. Take profit allows traders to salvage any profits before the markets move in an unfavourable direction.
When traders enter into BTC CFDs, they have the potential to take positions in both rising and falling markets. If they think Bitcoin will rise in value against another asset, they can “buy” the market. They can choose to “sell,” if they believe the price will fall.
To close the position, traders have to simply enter into a reverse of the original trade. So, if they entered into a long position before, they need to sell the same amount and vice versa.
Bitcoin trading requires planning, knowledge and discipline. With the right trading tools and risk management tactics, traders can enhance their long-term trading experience.
To close the position, traders have to simply enter into a reverse of the original trade. So, if they entered into a long position before, they need to sell the same amount and vice versa.
Bitcoin trading requires planning, knowledge and discipline. With the right trading tools and risk management tactics, traders can enhance their long-term trading experience.
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Cryptocurrency trading can be extremely risky and can lead to large and immediate financial losses. Crypto assets are highly volatile and can result in significant losses of your capital over a short period of time. Cryptocurrencies markets are unregulated services which are not governed by any specific regulatory framework. The provision of such services is not being directly provided by the Company but through licensed third parties.
CryptoGT does not provide its services to residents of various jurisdictions such as but not limited to the United States of America, North Korea and Cuba.
CryptoGT currently accepts only cryptocurrencies as method of deposit.
Cryptocurrency trading can be extremely risky and can lead to large and immediate financial losses. Crypto assets are highly volatile and can result in significant losses of your capital over a short period of time. Cryptocurrencies markets are unregulated services which are not governed by any specific regulatory framework. The provision of such services is not being directly provided by the Company but through licensed third parties.
CryptoGT does not provide its services to residents of various jurisdictions such as but not limited to the United States of America, North Korea and Cuba.
CryptoGT currently accepts only cryptocurrencies as method of deposit.