Things to Know Before Trading Bitcoin

Bitcoin is one of the most talked about investments of the past ten years. While the stock market is still the most popular way to invest, cryptocurrencies have gained popularity thanks to their insane volatility and rapid price gains. The value of BTC has gained more than 1000% since it first launched in 2009, and it shows little signs of slowing down.

As a result of the increased interest and growing value, more people than ever are getting into crypto investing. However, investing isn’t the only way to make money from the crypto market. Some people also like to trade coins such as Bitcoin, buying low and selling high. This involves trying to predict price movements and profiting from them by making repeated transactions on an exchange. In this guide, we’ll share some things you need to know before trading Bitcoin.

How Trading Bitcoin Works

While investing involves buying and holding an asset over a long time, trading is all about maximising short-term gains by making the most of price movements. As the cryptocurrency markets are very volatile, coins can increase and decrease in value by significant amounts in a short period of time. This increases risk but also increases the chance of making a profit.

The key to successful Bitcoin trading is predicting price movements. It’s impossible to predict this with 100% accuracy, but many traders use technical analysis to watch the charts and work out what may happen based on current news and market sentiment.

There are a few different ways to trade Bitcoin, but they all involve joining an exchange and using different currency pairs to buy and sell. Most traders will set prices at which they wish to complete transactions, along with stop limits that prevent them from losing too much on a trade.

Day trading, scalping and swing trading are all different ways to trade crypto, and each has advantages and disadvantages, Before you start, it’s important to know the potential risks and what each strategy entails.

Risks of Trading Bitcoin

Investing and trading always come with risks, as the value of your assets can drop at any time. As a result, it’s important to never invest or trade with more than you can afford to lose. Trading typically carries greater risks compared to investing, so you need to take extra precautions to protect yourself.

Liquidity risks are one of the biggest factors that affect many Bitcoin traders. Although the popularity of cryptocurrency has grown, some currency pairs on exchanges still have limited liquidity. If you’re used to trading stocks or other financial assets, you might not have experienced this level of liquidity before, and it can result in you being unable to complete trades.

Volatility is the other big risk of trading Bitcoin. While sudden price movements can result in big gains, they can just as easily result in heavy losses if you get your prediction wrong. 10% swings in a single day are not uncommon, and these have caused traders to lose significant amounts of money in the past.

Bitcoin Trading Strategies

Some of the most common Bitcoin trading strategies include:

• Dollar-cost averaging – Dollar-cost averaging is a long term trading strategy which aims to simply buy in multiple times over a period of time, splitting a total investment amount up into smaller chunks. The idea is that it will be better for the average position compared to simply investing in one go.
• Scalping – Scalping is a short term trading strategy which looks to make multiple, smaller trades within a short period of time. The theory behind this is to reduce risk.
• Swing trading – Swing traders use technical analysis to work out price movements as they happen and take advantage of them for maximum profit.