How Bitcoin Trading Works
Bitcoin trading is a simple process. Buy Bitcoin at a low price and then sell it at a higher price. Rinse and repeat. However there are several ways to trade Bitcoin and other crypto assets that will be outlined in the section ahead.
Different Ways To Trade Bitcoin For Profits
There is more than one way to trade Bitcoin. Here are the most common ways:
- Spot Trading: Spot trading involves buying and selling actual assets in an attempt to extract a return from the price fluctuation in between each order type. The aforementioned buying low and selling high is the primary strategy.
- Derivatives Trading: Bitcoin derivatives however allow different types of contracts based on Bitcoin’s price. These types of contracts include futures, options, and CFDs, or contracts for difference. Derivatives let traders long and short Bitcoin to profit whichever way the market turns and not just be tied to profiting just from rising prices. Long and short positions also allow for more strategic positioning, such as hedge positions to protect capital.
Bitcoin Trading Terms
We have created a miniature glossary focusing only on Bitcoin trading related terms for you to become familiar with:
- Bitcoin: A new form of digital currency protected by cryptography for anonymity and security.
- Long: A contract betting the price of an asset will rise.
- Short: A contract betting the price of an asset will fall.
- Leverage: A tool to amplify returns by using margin as collateral.
- CFD: Contract for difference, an agreement between two parties where the difference in price at open and close determines if profits or losses are made.
- Hedge: Opening a long and short at the same time as part of a strategy.
- Stop Loss: A risk management strategy that triggers a buy or sell order when a specified price is reached.
- Market Price: The price of an asset at the very moment, agreed upon by buyers and sellers.
- Scalping: Rapidly entering trades in and out for smaller, faster gains.
- Swing trading: Larger time frame trades across broader market movements.
- Support: Support levels are where a large cluster of orders exist, where the price of an asset could bounce.
- Resistance: Resistance levels are where a large cluster of orders exist, where the price of an asset could be rejected.
What Moves Bitcoin Price?
There are many important factors that influence Bitcoin price, these include:
- Speculation and Hype: Bitcoin and altcoins are speculative assets with use cases that don’t yet exist. White papers point to future uses in a world where these assets thrive, but right now they’re primarily driven by hype in terms of valuations. That’s why the very same assets that were trading at $20,000, $1400, and $3 are now trading at $9,000, $250, and 20 cents. Because once the hype of the crypto bubble ended, the bubble burst and valuations came back to reality.
- Supply and Demand: Supply and demand also impacted lower prices. The more assets being sold (supply) versus assets being bought (demand) is how prices fall. Bitcoin’s supply is hard capped, and along with mining make the dynamics of supply and demand in the crypto market unusual compared to other assets.
- News and Events: Certain breaking news or situations, such as new technology debuts, partnerships, or even hacks can send prices flying in one direction or another. Key events such as elections, seasonality, or product releases can also have an impact.
- Regulation and Adoption: Nothing can have a stronger influence on crypto than regulation and adoption. In the short term, regulatory changes could cause an enormous collapse due to demonetization. But long term adoption could bring BTC prices to astronomical predictions.
Share On social Media 👇