When looking to trade bitcoin there is an alternative to using exchanges to own and store the currency. Instead, you can trade on bitcoin price movements via CFD trading. You take a position on the price of the bitcoin market to rise or fall, based on our ‘buy’ and ‘sell’ prices.
Follow our ‘step-by-step guide to trading bitcoin’ below to find out more.
Bitcoin has guided the direction of most cryptocurrencies in the crypto market. It’s the go-to cryptocurrency that many can name, but few properly understand. Known to be volatile, traders can experience massive shifts in price when trading bitcoin, which contributes to both its appeal and risk.
This article is aimed at people who wish to learn how to trade Bitcoin. Following this step-by-step guide will help you to make informed decisions in the Bitcoin market. To understand how Bitcoin works, visit our "What is Bitcoin?" article to learn more about the digital currency that steers this market.
Bitcoin can be traded through a range of avenues, such as via a broker, cryptocurrency exchange, or by speculating on price movements through derivatives like CFDs without owning the underlying asset.
CFD trading allows traders to go long or short on Bitcoin prices and can be used for hedging and risk management.
Bitcoin is known for its high volatility, creating both potential opportunities and significant risks.
Common Bitcoin trading strategies include day trading, swing trading, and scalping.
Algorithmic trading (Expert Advisors) can automate trading and risk management, but can induce further risk due to Bitcoin’s volatility and limited historical data.
Staying informed on market news, security developments, and macroeconomic factors can support better trading decisions.
Trading bitcoin is split into two major categories. The first involves buying bitcoins on an exchange, in the hope of selling them at a later date for a profit. This process relies heavily on bitcoin exchanges’ matching servers, which can be unreliable. The second bitcoin trading method is based on the speculation of price movements without actually owning the currency. This method is practised via a CFD trading account.
Exchanges that hold your bitcoin store large amounts of bitcoin and other cryptocurrencies are making them prime targets for cyber theft. Hacking and theft from cryptocurrency exchanges is a common practice; on average a major exchange was hacked every other month in 2018. Some notable cyber thefts in 2018 include $534,800,000 stolen from Coincheck in January that year, and $195,000,000 from BitGrail in February. So there is clearly a risk in holding bitcoins on an exchange.
Cryptocurrencies operate within an infrastructure characterised by fewer regulations compared to conventional financial markets. This gives rise to a number of scams, and a lower degree of trust among investors. Also, due to its unregulated nature, there is very little support from other parties. This support can be needed as Bitcoin’s matching servers on some exchanges are unreliable, which could result in a trade execution that is not accurate, as it is not updated promptly.
CFD trading is a derivative product based on financial leverage that is available globally. For a comprehensive explanation, visit what a contract for difference is.
CFDs can be used as a hedging tool, where you can offset any losses incurred with a physical trade in the underlying market by opening a ‘sell’ CFD position, for example. This could be particularly useful in volatile markets, where prices are subject to regular and sometimes sudden movements. Subject to your circumstances, you should be able to offset any losses you make against your profits for tax purposes.
What is the right bitcoin trading strategy for you? It largely comes down to your level of experience, free time, capital invested and daily discipline. Everyone has different goals when trading bitcoin, and some people will restructure their responsibilities around trading, whereas others will want trading to work around their responsibilities.
If you plan on investing in or trading bitcoin, you are likely to utilise one of the following methods.
Day trading bitcoin refers to the buying and selling of bitcoin in the same trading day. The strategy involves the placement of long and short trades in an attempt to capitalise on the speculation of price movements. A day trader will close all of their positions at the end of the trading day, ensuring no positions are open overnight.
Day trading is perhaps the best option for traders who are looking to build a career trading markets. It can be very technical, takes a lot of time and has a steep learning curve. However, for those who are very dedicated, and have the focus to regularly analyse charts, this may be for you.
Swing trading is about buying and selling bitcoin based on market movements, and holding on to that position until the trend slows down or you witness a trend reversal. Unlike day trading, positions can be held from a couple of days to a few weeks.
The swing trader commonly utilises technical analysis and rarely analyses a market’s fundamental data. Utilising technical signals such as Fibonacci retracement and moving average convergence divergence (MACDs), a swing trader makes their profit from capitalising on trends the moment they form.
Swing traders generally experience more risk in comparison to day traders, as the positions they hold are open for longer periods than those of day traders. However, this trading method often requires less time commitment as trades typically last for several weeks.
Scalping bitcoin is a trading strategy that involves placing frequent trades over extremely short periods, sometimes just minutes long. Scalping traders attempt to capitalise on small market movements.
When scalping bitcoin, you should always have a clear exit strategy, as one trading loss could counteract any small gains you have made. With discipline, scalping bitcoin can be a lower-risk trading strategy. This is because spreading your capital over a large number of small trades diversifies your capital risk.
Traders often use algorithmic trading or trading automation in forex markets. By utilising a feature on the MetaTrader 4 (MT4) platform known as ‘Expert Advisors’ (EAs), traders can make use of EAs for Bitcoin. These programs run based on algorithms you set that can monitor, evaluate and trade on financial markets. Based on the filters you set, EAs will find opportunities and seize them.
EAs can also be used to manage risk, as they remove the emotional aspect from trading, and can set risk-management conditions such as limit orders, stop losses, and take-profit.
As the cryptocurrency markets are less mature than many of the popular markets such as forex and shares, there is generally less historical data to base algorithms on. Pair this with the volatile, unpredictable nature of cryptocurrencies and you will see that Expert Advisors for Bitcoin are relatively more risky.
Open a CMC CFD account.
To place bitcoin trades via CFDs, you can with CMC Markets. Open a live account to start trading Bitcoin, though it may be prudent to practise with a demo account first.
Devise your Bitcoin trading strategy.
Undertaking research may help you determine how you plan to trade Bitcoin and outline elements such as position sizing and potential entry and exit points within a trading plan. If you are unsure which approach may suit you, you might consider factors such as the time you have available, the capital you intend to allocate, your level of experience, and the discipline required to follow a strategy.
Build your trading strategy plan.
After you have chosen your bitcoin trading strategy you can take it a step further and start defining your trading plan. A trading plan can help you make decisions based on objective information you have delineated before entering a trade. This helps you make consistent decisions from your plan with the aim of not entering or exiting a trade too early or late. Want some help designing your trading plan? We have a guide that can help you create a trading strategy plan.
Research the markets.
When trading bitcoin or any other financial instrument, you should try to be aware of any news concerning the security and macroeconomics of the market, industry and/or country. This awareness can support the forecasting of future trends and offer insight into the causes of an instrument’s price movement. Our news and analysis section may help you to stay on top of developments in the bitcoin market and surrounding influences.
Trade and monitor.
Next, you can place a bitcoin trade that’s underpinned by your market research and trading plan. You’ll want to input your position sizing and add risk-management options, like stop-loss and take-profit orders. These trading conditions can play a pivotal role in successful risk management.
The platform you trade on can make a huge difference to your ability to analyse and execute trades efficiently. Our CMC Markets trading platform levels of experience, and can be modified to suit your specific trading needs.
Equipped with over 100 technical indicators and an abundance of chart patterns and types, you can access all the relevant features you need to conduct thorough technical analysis.
You can trade on the go with our powerful mobile trading applications for iPhone, Android and iPad. Trade on bitcoin prices from the comfort of your phone, with over 40 technical indicators and full order ticket functionality.
