How to Trade Bitcoin - Cryptocurrency Trading Guide for Beginners

Thursday May 12, 2022

Do you want to learn to trade Bitcoin? If so, here's a cryptocurrency trading guide for beginners to help you get started.

In simplest terms, Bitcoin trading is purchasing and selling this digital currency, aiming to profit from its changing value. People trade a cryptocurrency like Bitcoin as a Contract For Difference or CFD via a broker. Some people prefer brokers because they make crypto trading as secure and straightforward as trading forex or stocks.

When trading Bitcoin CFDs, you do not own the crypto asset. Instead, you buy and sell its price movements, implying that you can profit even if the price drops or increases. Crypto CFD trading enables you to use leverage, meaning a small capital can allow you access to trades of higher values.

For instance, your trading account with $1,000 and leverage of 100:1 can open trades of up to $100,000. Although you can generate significant returns trading leverage, it increases your risk level too. Therefore, traders should use this option wisely.

Understanding Bitcoin Trading Better

Bitcoin is the most renowned cryptocurrency since it was the first successful asset running on the blockchain. Like most cryptocurrencies, this digital currency works as an electronic payment method for services and goods. Although it doesn't have a physical existence, people exchange it for fiat money. Platforms like the allow people and enterprises to purchase Bitcoin with fiat money.

But buying Bitcoin is different from trading crypto CFDs. When a person buys Bitcoin via a crypto exchange, they pay the total price and take ownership of the crypto asset. On the other hand, trading Bitcoin CFD means the person speculates on its real-time price changes, either down or up.

The primary benefit of Bitcoin CFD trading is that a trader can use leverage. Thus, they can open a significant trade position with small capital. Nevertheless, trading leverage increases the risk level despite being an attractive method of maximizing profits.

How Much Fiat Money Do You Need to Trade Bitcoin?

The amount of fiat money you need to trade Bitcoin depends on your financial goals. Also, the approach you choose will influence the amount of trading capital you will need. For instance, if you opt to trade Bitcoin CFDs, you can start with a small amount of fiat money. That's because you can use leverage to take advantage of significant trade positions. For instance, you can start trading Bitcoin CFDs for as low as $100.

On the other hand, crypto exchanges have varying amounts for minimum deposits. For instance, one crypto exchange can set the minimum deposit at $150 while the other can set it at $250. Therefore, consider the lowest amount you can start trading with when choosing your Bitcoin exchange.

Additionally, consider your risk tolerance when deciding on the amount to start trading with due to Bitcoin's volatility. Being a volatile asset makes Bitcoin a riskier commodity. Therefore, start by analyzing your risk tolerance level and invest what you can lose, and continue with life as if nothing happened. Once you've done that, decide how to trade Bitcoin.

Choose Your Bitcoin Trading Strategies

Bitcoin has several trading strategies, and they work for different people. Therefore, understand how each method works to enhance your success chances. Common Bitcoin trading strategies are:

  • Day trading

  • Swing trading

  • Scalp trading

  • Position trading

    Apart from these strategies, implement an effective risk management strategy. For instance, have a risk-to-reward ratio. That means avoiding a trade if it doesn't have the potential to yield at least a 2:1 risk-to-reward ratio. Also, implement a stop loss to place trades at the right moment. Risk-to-reward ratio and a stop loss are the best risk management strategies for preventing significant losses.