There is a ton of chatter going on about Bitcoin and, depending on who you listen to, Bitcoin might be good or bad, easy or hard to use, worthwhile or likely to be a bust. While it can be hard to sort out if Bitcoin is going to go up or down in value, or if it is the future of currency or just a flash in the pan, one thing that is for sure is that Bitcoin is available to buy and sell right now. You can also use it for purchases if you’re creative enough and if you plan in advance for who will take the Bitcoin. Here is an A to Z Bitcoin guide for those who are curious about how this new cryptocurrency bought, sold, and used. Plus, the only REGULATED way to play with Bitcoin and the SAFEST way to buy Bitcoin TODAY.
As the world’s first cryptocurrency, many see bitcoin as the most likely contender to mount a serious challenge to traditional (or ‘fiat’) currencies. Considering its price history, though, it looks like there’s going to be a lot of volatility along the way.
You can start profiting with bitcoin by following these for steps:
- Decide how you want to Play bitcoin
- Learn the factors that move bitcoin’s price
- Choose a bitcoin trading strategy
- Make your first bitcoin trade
What is the solution? Here are the easiest 2 ways to get exposure on Bitcoin with your funds.
1. Ways to play Bitcoin
There are two ways to play bitcoin: buying Bitcoin itself in the hope of selling it on at a profit or speculate on its value without ever owning the token. The latter is how CFDs work.
Set up Your Virtual Bitcoin Wallet...or NOT?
Bitcoin is meant to be an entirely anonymous platform, like the way cash works in the physical world. You are supposed to be able to buy and sell things on digital platforms without financial details and records being exchanged.
In reality, it doesn’t work that way for most people. For an average person, to buy and sell Bitcoin or to play Bitcoin you almost have to use what is called a Bitcoin wallet.
There are several companies that offer Bitcoin wallets, with Coinbase being one of the more popular options. In order to use Coinbase, you must give them personal details including your email address, your name, and the ability to link to your bank account.
But a Bitcoin wallet doesn’t come with any kind of government guarantees. So, if Coinbase goes under or your Bitcoin is lost or stolen, the consumer has very little recourse, meaning you will probably never get your money back.
A CFD or contract-for-difference enables you to trade a contract based on prices in the underlying market. It is a leveraged product, meaning you can put down a small initial deposit and still gain the exposure of a much larger position. This can magnify your profits, though it can have the same effect on your losses.
Do I need to use an exchange to trade bitcoin?
To speculate on Bitcoin's value is how CFDs work. When you trade bitcoin CFDs, you never interact directly with an exchange. Instead, you trade on our buy and sell prices, which we source from a number of exchanges on your behalf. In order to take a position on bitcoin’s price, then, all you need is an AM Broker trading account.
Bitcoin exchanges work the same way as traditional exchanges, enabling investors to buy the cryptocurrency from or sell it to one another. But there are a number of advantages to cutting them out of the equation entirely:
- They lack proper regulation, public records and the infrastructure needed to respond quickly to support requests
- Their matching engines and servers are unreliable, which can result in the suspension of markets or reduced execution accuracy
- They impose fees and restrictions on funding and withdrawing from your exchange account, while accounts themselves can take days to acquire
By trading bitcoin CFDs, you also gain significantly improved liquidity at your chosen touch price. When you buy and sell direct from the exchange, you generally have to accept multiple prices in order to complete your order.
The sections that follow explain some of the main features and uses of contracts for difference for Bitcoin trading, the one and only REGULATED way to play Bitcoin today.
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Bitcoin trading explained
CFD trading enables you to speculate on Bitcoin price movements in either direction. So while you can mimic a traditional trade that profits as Bitcoin market rise in price, you can also open a CFD position that will profit as the underlying market decreases in price. This is referred to as selling or ‘going short’ Bitcoin, as opposed to buying or ‘going long’.
If you think Bitcoin price is going to fall in price, for example, you could sell 1 contract on Bitcoin. You’ll still exchange the difference in price between when your position is opened and when it is closed but will earn a profit if the Bitcoin drops in price and a loss if it increases in price.
With both long and short trades, Bitcoin profits and losses will be realized once the position is closed.
Buy and Sell Bitcoin with Leverage explained
CFD trading is leveraged, which means you can gain exposure to a large position without having to commit the full cost at the outset. Say you wanted to open a position equivalent to 1 Bitcoin. With a standard trade, that would mean paying the full cost of the Bitcoin up front, let's say 10.000 USD. With a contract for difference, on the other hand, you might only have to put up 20% of the cost, or 2.000 USD.
While leverage enables you to spread your capital further, it is important to keep in mind that your profit or loss will still be calculated on the full size of your position. In our example, that would be the difference in the price of 1 Bitcoin from the point you opened the trade to the point you closed it. That means both profits and losses can be hugely magnified (5 times in our example) compared to your outlay. For this reason, it is important to pay attention to the leverage ratio and make sure that you are trading within your means, as with CFDs you can trade the value of 5 Bitcoin with 10.000 in your trading account.
Hedging Bitcoin Wallet with CFDs explained
CFDs can also be used to hedge against losses in an existing portfolio.
For example, if you believed that some cryptocurrencies in your portfolio could suffer a short-term dip in value as a result of disappointing market reports, you could offset some of the potential loss by going short on the market through a CFD trade. If you did decide to hedge your risk in this way, any drop in the value of the Bitcoin or any other cryptocurrency in your portfolio would be offset by a gain in your short CFD trade.
Making money playing Bitcoin explained
For a full calculation of the profit or loss from a trade, you’d also subtract any charges or fees you paid. These could be overnight funding charges, commission or guaranteed stop fees. With AM Broker commission per trade is 0, so the only cost is the overnight swap if positions are not closed on daily basis.
Say, for instance, that you buy 0.4 Bitcoin contracts when the buy price is 10.000. The free margin or collateral needed in your trading account is 20% x 0.4 BTCUSD, so you need 800 USD to buy or sell 0.4 Bitcoins. The lowest volume is 0.1 Bitcoin so one can start trading Bitcoin with as low as 200 USD in his trading account.
If you sell when the BTCUSD is trading at 11.000, your profit would be 1.000
- Initial Investment to buy 0.4 Bitcoin = 800 USD
- Profit if the price goes up from 10.000 to 11.000 = 1.000 USD
What are bitcoin’s trading hours?
On many platforms, Bitcoin (USD) opens at 3 am on Saturday, and is available to trade until 9 pm (GMT) on Friday.
With AM Broker, Cryptocurrency Trading is open 24 hourly 7 days a week on pairs with EUR and crypto cross.
Can I take advantage of Bitcoin without actually trading Bitcoin?
Yes, you can and this is the SAFEST way to play Bitcoin today. Blockchain is touted as the next game-changer in the tech sector. The underlying technology behind bitcoin mining and trading has rapidly gained traction over the last few years, driven by accelerated multi-industrial adoption and mainstream adoption.
It is mandatory to mention that there is also a substantial portion of the market seeking exposure to bitcoin and other cryptocurrencies without having to buy and store the underlying asset. These companies offer the opportunity not just to pick up an exposure to cryptocurrencies, but to also pick up a shorter-term exposure to a company that is growing on an influx of speculative volume-based purely on its connection to bitcoin and blockchain.
As of today, however, a lot of stock exchange-listed companies has shifted its focus to bitcoin, blockchain and the cryptocurrency space in general.
- IBM Corporation: IBM is currently the dominant player in the blockchain market. IBM uses hyperledger technology for its blockchain applications and is also a key member of the Hyperledger committee. This enables it to gain access to prior notification of any changes in the underlying infrastructure.
- Microsoft Corporation: MSFT is another prominent provider of blockchain technology. The company's solutions are built on Ethereum. However, it is not a member of the concerned foundation, which is hurting its ability to win customers compared with IBM. Nevertheless, Microsoft has been aggressively trying to expand its footprint in the technology domain via collaborations for faster and secure blockchain-based transactions.
- JPMorgan Chase & Co: Despite being huge a critic of bitcoins, U.S.-banking giant JPM has left no stone unturned to develop solutions using the underlying technology. JPMorgan is currently involved in the development of an enterprise-focused version of blockchain called Quorum, which is based on Ethereum technology. This initiative was taken up by the company after it reportedly exited a behemoth blockchain collaboration in April 2017 that was backed by around 80 financial institutions led by New York-based start-up, RS CEV. The consortium aims at developing the finance sector-related blockchain technology.
- Swiss Bank UBS Group AG: UBS is playing an instrumental role in bringing blockchain mainstream. The company is a co-founder of the Utility Settlement Coin (USC) system that helps banks and other financial institutions to process faster security transactions among themselves.
- NVIDIA Corp.: Smart investors should have a look at NVDA which makes chips that power cryptocurrency mining. Notably, miners require advanced hardware to smoothly run parallel processing. Hence, they need powerful processors and chips. NVIDIA's graphics processing units (GPU) are believed to be the best in creating bitcoin. As NVIDIA is well known for offering more advanced and fast GPUs - it is the first choice of most bitcoin miners.
The increasing adoption of blockchain technology is expected to cut down on expenses as it will limit data theft-related losses. This, in turn, will have a positive impact on consumer margins and the bottom line. We believe that the above-mentioned high-yield dividend stocks are solid picks for investors looking to benefit from blockchain's increasing adoption.
Continue reading or practice on a demo account and learn how to get exposure to Bitcoin technology buying stocks and Bitcoin ETFs (Bitcoin Investment Funds).
2. What moves bitcoin's price?
While bitcoin’s volatility makes the cryptocurrency an attractive opportunity, it also makes it a particularly risky market to speculate on. Its price can shift significantly and suddenly – and since the bitcoin market operates around the clock, this is liable to happen any time of day.
As a decentralized currency, bitcoin is free from many of the economic and political concerns which affect traditional currencies. But as a market still in its adolescence, there is a lot of uncertainty entirely unique to the cryptocurrency.
Any one of the following factors could have a sudden and significant impact on its price, and as such you need to learn to navigate the risks they may open up.
- Bitcoin supply: There may be a finite supply of bitcoins – 21 million, all of which are expected to be mined by 2040 – but even so, availability fluctuates depending on the rate with which they enter the market, as well as the activity of those who hold them
- BTC Market cap: The value of the bitcoin market – and how valuable it is perceived to be – both influence whether traders will look to get in on a surging opportunity, or short the latest bubble
- Bad press: All currencies are affected by public perception, but no more so than bitcoin, whose security, value and longevity is in question even at the best of times
- Integration: Bitcoin’s profile – and confidence in traditional currencies – will depend on its integration into new payment systems, crowdfunding platforms and more
- Industry adoption: Bitcoin is yet to be embraced by businesses across the globe, and it remains to be seen what impact a more significant standing on the corporate stage will have
- Key events: Any number of major events could have serious implications for the cryptocurrency, including regulation changes, security breaches, macroeconomic setbacks and more
3. Bitcoin trading strategies
Day trading Bitcoin
Take a position based on anticipated short-term movements, and close it out at the end of the trading day.
The strategy for you if you want to respond to short-term opportunities in the bitcoin market, in light of developing news or emerging patterns.
Swing trading Bitcoin
Catch trends the moment they form, and hold onto the position until the trend runs its course or shows signs of a reversal.
The strategy for you if you want to capitalize on opportunities from market momentum.
Place frequent, intraday trades on minor price movements.
The strategy for you if you want to put yourself in a position to make small, continuous profits, rather than wait for one significant breakout or breakdown.
Automated trading Bitcoin
Automate your trading processes to react to changeable market conditions on your behalf. You'll need an Expert Advisor Generator to build Bitcoin EAs the same way you build Forex EAs.
For you, if you’d prefer to be a passive trader.
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4. Steps to trading bitcoin
1. Open an account
To trade CFDs, you’ll first need an AM Broker trading account. It only takes a few minutes to get set up, and you can take your first position as soon as you’ve added funds.
Keep in mind that, unlike if you were to buy and sell bitcoin, you won’t need an account with a bitcoin exchange. That’s because you trade on the prices offered we derive from multiple exchanges on your behalf.
>> Create an account
2. Build a trading plan
You’ve chosen a trading strategy, but if you’re new to the markets you might want to consider a trading plan as well. A trading system can help you make objective decisions even when the stake is high so that you don’t leave trades open too long – or close them too early.
Here are a few tips for creating a Bitcoin trading plan:
- Set out what you want to achieve from your Bitcoin trading, broken down into short and long-term goals
- Decide your acceptable risk from each Bitcoin trade, as well as how much you are willing to risk overall
- Pick a risk-reward ratio, so you know how much potential profit you need to justify your potential loss
- Choose which markets you want to trade. Do you want to start with just bitcoin, or try a few more?
3. Do your research
Before you start to play Bitcoin online, you need to make sure you’re up to speed with the latest bitcoin news, in order to best understand what’s next for the cryptocurrency’s price.
When it comes to interpreting bitcoin’s behavior, charts can also be an invaluable tool. Past data can help you make sense of how the Bitcoin market is moving, while comparing timeframes may provide a closer insight into emerging trends and patterns.
>> Download the Bitcoin trading platform
4. Place a trade
Once you’ve settled on your position, you’ll need to place a trade using our web trading platform, desktop platform or mobile platform.
You’ll enter the amount you want to stake on your trade-in the deal ticket. You can also define your close conditions: set a stop to close your position when the market moves against you by a certain amount or a limit for when it moves in your favor. Exit orders like Stop Loss and Trailing Stop and entry orders like buy limit, sell limit, buy stop, sell stop are central to good risk management.
If you expect bitcoin to rise in value, you'll then ‘buy’ the market. If you think it will fall, you'll ‘sell.’
To close your position, you simply place the reverse of your original trade. So if you bought in the first instance, you’ll sell the same amount; if you sold, you’ll now buy. We’ll automatically fill your deal ticket with the position size, meaning you simply need to click ‘buy’ or ‘sell’ to close your trade.
Understanding how to play Bitcoin is important, but if you need some help MetaTrader 5, the most popular Bitcoin trading platform for desktop, mobile and web browser provides access to a wide range of cryptocurrencies, stocks, ETFs and other assets.
Here is a list of questions related to Bitcoin to better understand what is Bitcoin and how does it work.
What is bitcoin?
Bitcoin is a cryptographically-secured digital currency that operates outside of the mandate of a central authority. It was created in 2009 by the pseudonymous Satoshi Nakamoto and originally conceived as a method of payment that wouldn’t be subject to government oversight, transaction fees or transfer delay – unlike traditional ‘fiat’ currency.
Back in 2010, bitcoins were worth around 0.003 cents each. As of October 2017, that figure is upwards of $4200 – though this value has proved volatile, with frequent intraday swings. In that time, hundreds of more cryptocurrencies have emerged, all with unique features and applications. Few of these have any significant value, but bitcoin does have its rivals in the form of ether and bitcoin cash, and – to a lesser extent – litecoin, ripple and dash.
How does bitcoin work?
Bitcoin needs two underlying mechanisms to function: the blockchain and the mining process.
The blockchain is a shared digital ledger composed of all the bitcoin transactions that have taken place up to that point. These transactions are grouped together in ‘blocks’, which are cryptographically secured during mining and linked to one another.
The blockchain is accessible to everyone at any given time, and can only be altered with the will and computing power of the majority of the network. This means it is almost impossible to be retroactively amended, won’t fall victim to human error and lacks a single point of failure.
How to get bitcoin?
There are three main ways people get Bitcoins.
- You can buy Bitcoins using 'real' money.
- You can sell things and let people pay you with Bitcoins.
- Or they can be created using a computer.
What is Bitcoin Mining?
Bitcoin Mining is the process required to secure each of these blocks and, in doing so, releases new units of the cryptocurrency. These units are known as the ‘block reward’. In bitcoin’s case, the block reward is currently 12.5 bitcoins, though this halves every four years or so.
The miner’s role is to carry out this process by solving complex algorithms – an ongoing task which can be made easier or more difficult. By altering the complexity of the algorithms, miners can ensure they keep the processing time of blocks roughly constant. Because of their crucial role in the network, miners exert significant control over bitcoin, especially as mining has now become big business.
Once these tokens are in circulation, they can be freely exchanged via an exchange, and stored in a digital wallet. When you trade bitcoin CFDs with AM Broker, you never actually own the underlying asset, so you won’t need a wallet or an exchange account.
What is a bitcoin fork?
A fork occurs when one blockchain splits into two, creating two separate records of data. It is up to the network of bitcoin miners to agree which one of these to continue using, and which should be discarded.
Bitcoin forks are the result of a misalignment of the community’s mining programs, and enable the blockchain to undergo essential software updates. The two main types are soft forks and hard forks.
- Soft forks: The upgraded blockchain is now responsible for validating all transactions (blocks), but the existing blockchain will still recognize and record these transactions. Keep in mind that this only works one way: the upgraded blockchain will not recognise any blocks mined via programs using the existing blockchain.
- Hard forks: The upgraded blockchain is now responsible for validating all transactions, but the existing blockchain no longer recognises these blocks as valid, nor records them. This means all users of outdated programs must update to access the upgraded blockchain.
Generally, forking is resolved with little to no disruption. But differences of opinion in how a cryptocurrency should scale or function have proven insurmountable in the past. The most high-profile example of this is bitcoin cash, which came about when bitcoin hard forked and divided bitcoin miners along with it. This ultimately resulted in two distinct cryptocurrencies, bitcoin, and bitcoin cash, albeit ones with the same transactional history up until July 2017.