Bitcoin trading crash course
Regardless of its long-term bearish periods, Bitcoin trading is still going strong and even though Bitcoin was initially developed to offer a cheaper and more efficient alternative to the traditional payment systems – today it’s widely regarded as one of the most interesting investment assets of our time.
Brokerages have also adopted cryptocurrency pairs and BTC/USD has been taking off as a speculative instrument since now traders can benefit from Bitcoin’s volatility regardless of its recent downturns.
Bitcoin’s biggest selling point and the reason behind its steep appreciation stems from its built-in scarcity. While the value of conventional fiat currencies is often manipulated by central banks with the hopes of spurring economic growth and curbing inflation – bitcoin’s eventual supply is set in stone. Only 21 million Bitcoin will be released during the lifetime of the cryptocurrency even though the difficulty with which they are being released is constantly increasing and therefore limiting the rate while each coin becomes even more valuable.
So, while you can still buy as much Bitcoin as you can afford – keep in mind that the going rate is currently at $8.000 – it holds even more profit opportunities as a speculative instrument since you don’t need to wait for the price to rise significantly in order to get a favorable return on your investment.
The advantages of trading Bitcoin
Scalpers and day-traders have the most to gain from Bitcoin trading as they gain immediate access to price fluctuations. Instead of buying and holding a small amount of Bitcoin and waiting for the price to go up, traders simply speculate on its future direction regardless if that is going up or down.
Therefore, trading crypto pairs such as the BTC/USD, effectively allows retail traders to profit from Bitcoin’s movements without owning any cryptocurrency from beforehand. Brokerages source the prices from trustworthy exchanges so that clients can always access a reliable live feed.
Of course, this doesn’t go to say that long-term trading with cryptocurrencies isn’t a viable approach for your trading strategy. Even though traders would be liable to pay a nominal fee for holding overnight positions, as is the case with all other currencies, it’s still an attractive proposition especially since big moves are quite common over the long periods of time.
Also, trading Bitcoin through a brokerage instead of buying from a traditional exchange offers traders access to leverage. Margin trading and leverage can be used to magnify profits by allowing traders to open large positions even with a small amount of initial deposit. This can magnify profits many times over, however, trading with high amounts of leverage can be fairly risky as it can also increase your exposure to risk in case the market doesn’t move in the direction you initially predicted.
Thankfully, brokerages and their trading platforms allow the use of risk management solutions and features such as stop loss and limit orders which can help close out positions as soon a favorable profit has been realized and even limit potential losses.
The main drivers behind Bitcoin volatility
High volatility is the reason Bitcoin trading is so popular among traders, however, it’s also the reason why it’s considered such a risky investment asset. While it can appear to be ranging between a certain level for a time, it can rapidly swing to the upside or succumb under downwards pressure and drop massively in value.
Being a decentralized and open source currency, Bitcoin isn’t vulnerable to the same sociopolitical and geopolitical events as other currencies but it’s still in its early stages and the lack of regulation is an important concern.
There are many factors that can affect the performance of Bitcoin and traders need to keep abreast of market developments to eliminate any surprises that can negatively impact their trading positions.
In fact, public perception of crypto is a fundamental indicator of Bitcoin’s performance as any new developments can shift market sentiment and mess with investors’ confidence in the digital currency. The faster Bitcoin is adopted by the mainstream, however, the easier it will be for the price to stabilize.
It’s also important to note that altcoins such as Ethereum, Ripple and Litecoin are positively correlated with Bitcoin’s price movements as more often than not, any fluctuations in Bitcoin are soon mirrored on the price charts of altcoins as well. Therefore, even if you are not trading Bitcoin and prefer other even more volatile cryptocurrencies, you should still keep an eye on Bitcoin’s value.