How to Trade Bitcoin?

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Updated: Dec 7, 2017, 13:32 GMT+00:00

Currently, the cryptocurrency market has not taken its final shape yet. The regulation coming from local government authorities is quite basic, while many still doubt whether blockchain, as it is now, can be applied on a large business scale.

False stories appear every now and again, boosting volatility, and some cryptocurrency exchanges are regularly hacked or go bankrupt. All this shows the high-risk nature of the digital coin market.

Still, with all that, the total market cap of the cryptocurrencies exceeds $250B (it was just $40B earlier this year). Bitcoin, Ether, and Bitcoin Cash are the leaders, with $256B, $40B, and $22B respectively at the time of writing.

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Major Investing and Trading Instruments

Bitcoin (BTC) is by far the greatest driver of the market. The first bitcoin exchange transaction took place in September 2009, when 5,050 bitcoins were exchanged for US$5.02. To date, BTC broke through $14,500 and is now the most valuable asset on the cryptocurrency market. Bitcoin has become a profitable investment for many, but there are many who are just approaching this instrument, too. High volatility brings a lot of excitement and anxiety, but also allows the speculators to capitalize on short-term moves.

Ether (ETH) is the second most popular digital currency, and also second by market cap. Most of the market players regard it as an investment vehicle, not a speculative asset. Apart from these two cryptocurrencies, investors and traders use such cryptocurrencies as Bitcoin Cash, Ripple, Bitcoin Gold, Litecoin, Dash, NEO, Monero, and IOTA.

Major exchanges offer cryptocurrency pairs trading, with BTC/ETH, DSH/BTC, and LTC/BTC being the most popular. To trade such pairs, one needs to thoroughly analyze the news and keep informed on the important events of the cryptocurrency market.

Currently, not only professional investors but also general public becomes more interested in cryptocurrencies.

Trading Bitcoin with a Broker

One of the easiest ways to get familiar with cryptocurrencies is opening a trading account with a major FX broker. Lately, upon cryptocurrency boom, more and more brokers have been offering digital currency trading to their clients. Trading conditions do not vary much from one broker to another.

More often than not, brokers provide access to cryptocurrency trading through MT4 and MT5 platforms. Let’s take BTC/USD for example. On average, the minimum position amount is BTC 0.1, with the spread of 0.30% or 0.40%, thus making it reasonable to trade on H1 and larger time frames. Leverage varies from 1:1 to 5:1, so you will need to deposit $200 to $1,000 in order to start trading. The broker usually takes a fee of 0.20% to 0.30% of the transaction amount.

It should be noted that bitcoin trading with a broker means trading contracts for difference (CFD’s) that enable taking profit in both rising and falling markets without physically owning the asset. For maximum security of your funds, we recommend you open accounts only with trusted brokers that are regulated by such prominent financial authorities as ASIC, CySEC, FCA, etc.

Trading Strategy

When it comes to bitcoin trading strategies, one should remember that, basically, BTC is a market asset, just like any other one. In this light, it can be influenced by the same fundamental and psychological factors as other financial instruments.

You surely remember that story of buying a pizza for a few thousands of bitcoins when the digital currency had been just introduced. Since then, however, Bitcoin price skyrocketed, so the buy-and-hold strategy is unlikely to bring you large profits now.

According to a widespread opinion, there are very few historical data to rely on technical analysis when it comes to bitcoin, and that’s why one should invest time into studying news and learning how the market reacts to it. Such an opinion is reasonable, as, indeed, news and events do influence the cryptocurrency markets. Still, saying that tech analysis is not going to work is at least unjust, or even unwise. Using tech analysis is as feasible as with other financial instruments, for the trends in cryptocurrencies also form regularly and logically.

Bitcoin Auto Trading Strategies

Another way to trade BTC/USD worth mentioning separately is R Trader, which is a platform enabling trading across various markers. Apart from over 8,000 US stock market assets (equities and ETF’s), German and Swiss stock market instruments, indices, and FX, it also provides you with access to BTC/EUR, BTC/USD, LTC/BTC, ETH/BTC, and ETH/USD.

BTC/USD trading conditions are even better than in MT4, as the minimum order amount is just 0.01 lots, with the fees and leverage being the same as in MT4 and MT5. This means that the minimum deposit amount is as small as $20 to $100, depending on the leverage in use.

However, the key advantage of R Trader is not better trading conditions but an opportunity to make use of a free Strategy Builder and a backtester.

You don’t need any coding skills to create a trading bot, as it is made of a set of rules. You can create strategies both from scratch and use out-of-the-box templates. Among such templates, you will find a cryptocurrency trading bot, too.

With the cryptocurrency market still just starting to develop, many short-term strategies that no longer work in traditional trading, being replaced with high-frequency trading (HFT) protocols, could be well used for digital coin investment. Even without any scalping, you could leverage the bitcoin prices and take advantage of Bitcoin’s volatility.

Taking into account the nature of the major BTC/USD movement, breakout strategies work just as planned for this pair. With new players appearing in the market, they may stop working so precisely, but as of now, classic patterns are showing great results with cryptocurrencies. As an option, you can also consider this strategy: BTCUSD, D1, Buy Strat, Parabolic SAR (0.02; 0.1).

What happened this year to Bitcoin is as important as when it had reached $100 or had become more expensive than a Troy ounce of gold. On Sep 1, BTC came extremely close to $5,000, while on Dec 7 it was already near $14,500.

Cryptocurrencies have caused mayhem all over the world, being one of the fastest-growing sectors of the global financial markets. Bitcoin is a great investment and trading vehicle, as long as you analyze it correctly and select an appropriate trading strategy. Which strategy it is going to be is entirely up to you.

RoboForex is a group of companies that offers brokerage services to clients in various countries over the world. The group provides traders from the Forex and stock markets with access to its proprietary trading platforms.

Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex bears no responsibility for trading results based on trading recommendations described in these analytical reviews.

About the Author

Dmitriy Gurkovskiycontributor

Dmitriy has Masters Degree in Finance from London School of Economics and Political Science, and a Masters Degree in Social Psychology from National Technical University of Ukraine. After receiving postgraduate degree he began working as the Head of Laboratory of Technical and Fundamental Analysis of Financial Markets at the International Institute of Applied Systems Analysis. The experience and skills he gained helped him to realize his potential as an analyst-trader and a portfolio manager in an investment company.