How to Trade Bitcoin 

Famed for its volatility, Bitcoin is one of the most popular and widely used cryptocurrencies in the world of digital assets. There are several ways in which you can trade Bitcoin and various strategies available for you to explore. Consider the following if you’d like to determine which approach aligns with your objectives and trading goals.  

Key Points 

• Bitcoin, launched in 2009, has grown from skepticism to become a major digital currency, attracting both big investors and the public. Its decentralisation is praised for potential inflation protection, though it faces regulatory hurdles. 
• Trading Bitcoin can be done by buying actual coins on exchanges or through Contract for Difference (CFDs) for speculative trading without owning the coins. Each method has its benefits and risks, emphasising the importance of research, careful strategy, and risk management. 
• Bitcoin prices are affected by its limited supply, adoption by businesses, market news, and potential for manipulation. Traders use strategies like day trading and automated trading, tailored to their goals and risk levels, to navigate its price volatility. 

What is Bitcoin? 

Bitcoin, released in 2009 by Satoshi Nakamoto, marked a revolutionary shift in the financial landscape. Initially met with scepticism, it gained momentum as a decentralised digital currency and store of value.  

Over time, Bitcoin’s adoption has grown, attracting both institutional investors and mainstream attention. Supporters praise its potential as a hedge against inflation, while critics cite its regulatory challenges. Bitcoin continues to evolve, prompting ongoing debates about its role in the global economy and the future of finance. 

How to Trade Bitcoin 

Bitcoin is a cryptocurrency, a non-tangible form of money that only exists within the electronic world. It lives outside the control of any one person or entity, removing third-party involvement in financial transactions.  

Trading Bitcoin involves several important elements and decisions. The first is how you trade your Bitcoin – whether it is real coins through a Cryptocurrency Exchange or a Contract for Difference (CFD) derivative through a broker like Vantage with a MultiTrader 4 (MT4) platform.  

If you choose to trade with CFDs, you’ll open your position on margin and buy and sell based on your speculation of price movements – without actually owning the coin.  

CFD derivatives function by establishing a contract between a trader and a broker to exchange the difference in the asset’s price from the contract’s opening to its closing. By speculating on price movements rather than owning the cryptocurrency, both short (sell) and long (buy) positions are possible. This allows traders to potentially profit from rising and falling Bitcoin prices.  

The key advantage of CFDs lies in their leverage. CFDs also offer flexibility, as they can be traded on various timeframes, from minutes to months, depending on your trading strategy and objectives. Understanding these mechanics is fundamental when trading Bitcoin through CFD derivatives. It’s also vital to acknowledge the potential risks associated.  

Some fundamental principles to consider when trading CFDs:  

• Select a reputable CFD broker 
• Thoroughly research Bitcoin 
• Risk management 
• Leverage wisely 
• Practice with a demo trading account 
• Stay informed 

Key benefits of CFDs may include:  

• Leverage  
• Short selling  
• Diverse asset range  
• Flexibility  

Keep in mind that leverage is a double-edged sword. It amplifies not only profits but also losses. 

Trading Bitcoin on an exchange, on the other hand, means you are buying the coin itself and will need to create an exchange account, storing your Bitcoin in a virtual wallet. Traders will choose this exchange method with the goal of eventually selling the coin. Compared to CFDs, you can’t participate in short-term selling without a willing party. To gain exposure to one Bitcoin, you will need to pay the full cost of the coin.  

Key benefits of exchanges may include:  

• Ownership of the actual Bitcoin  
• Long-term investment  
• Reduced counterparty risk  

What Affects Bitcoin’s Price? 

There are several main factors that will influence the price of Bitcoin. Understanding these influences is essential for traders and investors as they provide insights into cryptocurrency’s price movements. Remaining informed and up-to-date will also assist in making informed decisions in a volatile market.  

Let’s take a look at the key factors:  

1. Bitcoin Supply 

Bitcoin’s supply is capped at 21 million coins, a key feature of the cryptocurrency. As the network approaches this limit, scarcity becomes a significant driver of price. The halving events, which reduce the rate at which new Bitcoins are created, have historically led to price increases as the supply diminishes over time. 

2. Integration 

The integration of Bitcoin into mainstream financial systems and industries plays a pivotal role in price dynamics. As more businesses, payment processors, and institutional investors adopt Bitcoin, demand surges, potentially boosting prices. 

3. Key Events  

Regulatory changes, government actions, security breaches, or negative media coverage can have an immediate and profound impact on Bitcoin’s price. Positive regulatory developments can instil confidence and drive adoption, while negative news can lead to panic selling. 

4. Market Capitalisation  

Bitcoin’s market capitalisation, calculated by multiplying its price by the total number of coins in circulation, is a reflection of its overall value. Changes in the market cap can influence investor sentiment and trading activity. 

5. Market Manipulation 

The cryptocurrency market is susceptible to manipulation due to its relatively low liquidity compared to traditional markets. Large traders or coordinated efforts can influence prices, causing short-term spikes or crashes. Regulatory efforts aim to mitigate such manipulation. 

When trading Bitcoin in Australia or beyond, it’s wise to ensure you’re up to date with the ever-changing market landscape and potential price influences.  

Bitcoin Trading Strategies 

Bitcoin trading offers a variety of strategies to suit different risk appetites and timeframes. Here are three common Bitcoin trading strategies: 

1. Day Trading 

Day trading involves opening and closing Bitcoin positions within the same trading day. 

They seek to profit from short-term price fluctuations and capitalise on intraday volatility. 

2. Swing Trading 

Swing trading aims to capture intermediate-term price moves, typically holding positions for days to weeks. They look to capitalise on price swings within longer trends, taking advantage of both upward and downward movements. 

3. Automated Trading  

Automated trading utilises trading bots or expert advisors (EAs) on MT4 to execute predefined strategies automatically. Automation aims to remove emotional biases and maintain discipline in trading, allowing for systematic and consistent execution. 

Selecting the right strategy depends on your trading goals, risk tolerance, and the amount of time you can dedicate to trading. It’s essential to thoroughly research and practice your chosen strategy before committing real capital and to adapt your approach as market conditions change. 

Whether you’re a seasoned investor or a newcomer to Bitcoin trading, equipping yourself with the right tools and market expertise is essential. Prioritising research, aligning your strategy with your goals, and factoring in price volatility are all key places to start.  Whether you’re in it for the long haul or are keen to try your hand at short-term investments, there are many opportunities within the Bitcoin cryptocurrency space. Get started with cryptocurrency CFD trading with Vantage today.