Comprehensive Guide to Trading Bitcoin
Looking for an entry point into the exciting world of Bitcoin (BTC) trading? We'll help you though it.
In a time not so long ago, Bitcoin was nothing more than a fringe project that sought to challenge the status quo of the global monetary system. Fast forward to 2022 and this highly innovative digital currency now operates in a multi-billion dollar trading industry.
In fact, in the 24 hours prior to writing this guide, more than $100 billion worth of Bitcoin has changed hands. As such, this represents highly conducive conditions to trade Bitcoin on both a long and short-term basis.
But, trading Bitcoin is no easy feat - which is why we have put together an in-depth guide on How to Trade Bitcoin in 2022.
Within it, we explain the ins and outs of how this investment scene works, what risks and rewards you need to consider, and how you can start trading Bitcoin today.
How To Trade Bitcoin (BTC) in 5 Easy Steps
To trade Bitcoin (BTC), the first step is to open an account with a regulated exchange, deposit funds, select Bitcoin from the platform list, and lastly Buy BTC (go Long) or sell BTC (go Short).
This guide on how to Trade Bitcoin (BTC) will break everything down in Layman’s terms so that you do not trade blindly. But, if you don’t quite have the time to read it all of the ways through, this is what you need to do to trade Bitcoin now.
Step 1: Open an account with a regulated exchange
Step 2: Deposit funds to your account
Step 3: Choose how much Bitcoin you want to trade
Step 4: Buy BTC (go long) or sell BTC (go short)
Step 5: Confirm your trade
Let’s get started learning how to trade Bitcoin in 2022!
What is Bitcoin (BTC) Trading?
Put simply, Bitcoin (BTC) trading is the process of speculating on whether you think the price of the digital currency will rise or fall. This works in exactly the same way as any other financial marketplace - such as stocks or forex.
That is to say, if you speculate on the future direction of Bitcoin correctly, you will make a profit. The amount that you make will depend on how much you risked on the trade, and to what extent your prediction was correct in percentage terms.
Before we move onto the specifics of how to trade Bitcoin online, let’s run through a very basic example of what this might look like in practice.
- You decide to trade the price of Bitcoin against the US dollar
- As such, you are trading BTC/USD
- The current price of this crypto pair is $47,000
- You think that the price will rise in the coming days, so you place a buy order
- You stake $500
- A few days later Bitcoin is priced 10% higher
- You close the trade and make a profit of $50 (10% of $500 stake)
As you can see from the above, the fundamentals of how to trade Bitcoin works in exactly the same way as any other asset class. In other words, your prediction that Bitcoin would rise in value against the US dollar came to fruition - so you made a tidy profit of 10%.
How Does Bitcoin (BTC) Trading Work?
As we noted above, the underlying process of trading Bitcoin works much the same as any other financial market.
But, it is important to remember that this digital currency is like no other. By this, we mean that Bitcoin is still a relatively new and exciting phenomenon - so it’s crucial that you know what you are doing before you take the plunge
Here’s what you need to know:
Bitcoin Trading Price Movements
Whether it’s stocks, forex, or commodities - the value of an asset is derived by demand and supply. And of course - this theory remains constant when trading Bitcoin. In simple terms, if the market sentiment is good - then there will be more buyers than sellers.
In turn, the price of Bitcoin is likely to rise. If, however, market sentiment on Bitcoin is unfavourable, then the opposite will happen. In addition to this, real-world news developments will influence the demand and supply cycle of Bitcoin.
For example, if the US government announced that it was planning to regulate Bitcoin as a currency, this would actually be good news for the price of the cryptocurrency.
After all, it would give Bitcoin legitimacy at the highest level and thus - all but guarantee that the digital currency is here to stay. On the flip side, if the US government announced that it was looking to ban Bitcoin - this would have a disastrous impact on its market price.
The most important thing to remember is that the price of Bitcoin will go up and down throughout the trading day. In fact, cryptocurrency trading markets never sleep - so you can trade Bitcoin online 24/7.
Bitcoin Trading Pairs
The easiest way to understand the fundamentals of how to trade Bitcoin is to compare the process to forex. This is because all Bitcoin trading is facilitated via pairs. This comes in two different forms.
On some cryptocurrency brokerage sites, you can also trade Bitcoin against other currencies like the Euro or British pound. Trading volumes and liquidity levels will, however, be much lower in comparison to USD-denominated pairs.
In addition to BTC/USD, some traders like to dabble with crypto-to-crypto pairs (otherwise called crypto-cross pairs). As the name implies, you will be trading Bitcoin against another cryptocurrency.
For example, when the cryptocurrency markets are really bullish, you will often see the aforementioned alt-coins grow at a much faster rate than Bitcoin.
Similarly, when the markets are bearish, these coins drop much more frantically. As such, both crypto-to-fiat and crypto-to-crypto pairs are worth considering when trading Bitcoin.
Owning Bitcoin or Trading BTC CFDs
This is where things get interesting - as you essentially have two options when trading Bitcoin online. Some people like to buy digital currency in the traditional sense and hope that it increases in price in the medium-to-long term.
Alternatively, some prefer to trade Bitcoin CFDs.This means that you will be trading the future price of Bitcoin without needing to own or store it.
Before explaining the key differences between the two - we should note that Bitcoin CFDs (and all CFDs for that matter) are not available to US citizens - as per CFTC regulations.
Trade and Own Bitcoin
If you want to trade Bitcoin and own the underlying instrument, then you can do this through a regulated broker like eToro. Once you make the purchase you will retain full ownership of the Bitcoin until you decide to sell.
This option is best suited to those of you that are complete newbies and don’t quite know how to trade Bitcoin properly. This is because you don’t need to have any knowledge of technical analysis - nor do you need to worry about short-term volatility.
The other option is to use a cryptocurrency trading exchange. These typically offer hundreds of tradable Bitcoin pairs.
In most cases, you won’t be able to trade fiat pairs in the truest form. Instead, BTC/USD will be represented by ‘USDT’ - which is a digital currency called Tether that is pegged to the US dollar.
Bitcoin Trading via CFDs
An additional option that you have at your disposal is that of Bitcoin CFDs. As noted above, these are financial instruments that allow you to speculate on Bitcoin without owning it. Instead, CFDs merely track the real-world global price of Bitcoin.
The advantage of going the CFD-route is that you will have the option of going short. In simple terms, this means that you are profitable in the event that the price of Bitcoin goes down. Additionally, Bitcoin CFDs allow you to trade on margin.
This means that you can trade with more money than you have available to you. In the European Union and the UK, for example, you can trade Bitcoin CFDs with a 50% margin. This means that a £500 position would require a deposit of just £250.
Ready to dive into Bitcoin trading?
How to Trade Bitcoin (BTC) Online - Setting up a Trade
Although we are going to discuss the ins and outs of choosing a Bitcoin trading broker later in this guide, we first want to explain how the order process works.
Crucially, the explainers outlined below remain constant irrespective of which broker you use to trade Bitcoin online.
1. Buy or Sell Order
Firstly, unless you are using a broker to buy Bitcoin outright, you will always have the option of placing a buy or sell order.
- For example, let’s suppose that BTC/USD is currently priced at $47,000.
- If you place a buy order, this means that you think the exchange rate of the pair will increase.
- If you place a sell order, this means that you think the exchange rate of the pair will decrease.
In learning how to trade Bitcoin online, you should know that all positions require both a buy and sell order. If, for example, you entered your trade with a buy order, you would need to close it with a sell order. The same rings true for entering a trade with a sell order, but in reverse.
2. Entry Price
When setting up your Bitcoin trading position at your chosen broker, you will always have the option of how you wish to enter the market. This comes in the form of a ‘market’ order and a ‘limit’ order.
- A market order is placed when you want your trade executed instantly. The exact price that you get will likely be slightly above or below the current price that you are being quoted.
- A limit order allows you to specify the price your Bitcoin trade is executed at. For example, although Bitcoin might be priced at $47,000 - you might want to enter when the price hits $46,000.
If you're wondering which order type you should opt for - this really varies on a case-by-case basis.
For example, if Bitcoin is moving in an upward trajectory at a parabolic rate and you wish to jump on the bandwagon - you will likely be best suited for a market order. This is because your trade will be executed immediately and thus - you won’t miss out.
At the other end of the spectrum, if you are planning a short-term Bitcoin trader where you want to take advantage of a prolonged consolidation period, then you will likely want to set up a limit order. This will ensure that you are able to maximize your potential gains by entering the trade at the most favourable price possible.
3. Exit Strategy
Once you have placed a buy/sell and market/limit order, you can then close your position whenever you see fit.
As we mentioned earlier, you simply need to place the opposite order to the one you opened with. For example, if you entered with a sell order you need to close the trade with a buy order.
With that being said, if you are learning how to trade Bitcoin for the first time, we would strongly suggest that you also place stop-loss and take-profit orders.
In doing so, you are instructing your brokerage platform to close your trade for you automatically when one of two things happens. Either your stop-loss profit is activated or your take-profit order is.
So what exactly are stop-loss and take-profit orders in the context of trading Bitcoin? Well, stop-loss orders allow you to exit a losing trade when it is in the red by a specified amount. For example, you might decide to limit your losses to 3%.
Take-profit orders work in the same way, but you will exit the trade when a price target is reached. For example, you might instruct your broker to close the position when you are 10% in profit.
Here’s how the above scenario would work when trading Bitcoin online:
- Let’s say that BTC/USD is currently priced at $50,000
- You are going long on this trade with a buy order
- You want to limit your losses to 3%, so your stop-loss order price needs to sit at 3% below $50k.
- As such, your stop-loss should be entered at $48,500
- You want to close your trade if Bitocin increases by 10%
- As such, your take-profit order should be entered at $55,000
As per the above, if the price of Bitcoin goes down to $48.5k - your 3% stop-loss order will be triggered. Or, if Bitcoin increases to $55k - your 10% take-profit order will come into play.
Check Out: How to Trade Bitcoin With $100
How to Make Money Trading Bitcoin (BTC)
So now that you know the ins and outs of how Bitcoin trading orders work, we now need to explain how you actually make money. Once again, the specifics here are no different to trade stocks, forex, or any other asset class.
Nevertheless, if you’re a complete newbie and want to learn how to trade Bitcoin from top to bottom, here’s what you need to know.
How can you make money trading Bitcoin (BTC)?
First and foremost, the amount of money that you are able to make when trading Bitcoin will depend on how much you risk.
The minimum stake is determined by your choice of broker. For example, eToro allows you to risk just $10 when trading Bitcoin. Other brokers, however, require a much higher stake.
With that said, the amount you stake should be based on the amount you have in trading capital. For example, most traders will never risk more than 1% of their balance. As such, if you have $4,000 deposited in your brokerage account, the maximum stake should not surpass $40.
2. Gains in Percentage Terms
On top of your stake, the amount of money you can make from a Bitcoin trade will depend on how much the digital currency went up or down in terms of price. All you need to do here is multiply the percentage gain by the amount you staked.
- For example, if you risked $1,000 on a buy order and Bitcoin increased by 10%, then you would make a profit of $100
- Similarly, if you placed a sell order on Bitcoin worth $2,000 and the digital currency dropped by 20% - you would make a profit of $400
It should be noted that the above gains can be amplified handsomely when applying leverage - which we elaborate on below.
3. Bitcoin Trading Leverage
Before we explain how leverage works, we should once again note that this won't be available to US traders. This is because leverage goes hand-in-hand with CFDs, which the CFTC prohibits.
However, if you are based elsewhere - and you decide to trade Bitcoin via CFD instruments, then you should be able to get leverage. As we mentioned earlier, UK, European, and soon-to-be Australians are capped at 1:2 when trading cryptocurrencies like Bitcoin.
Nevertheless, here’s a basic example of how leverage can amplify your Bitcoin trading margins.
- You place a sell order on Bitcoin worth $1,000
- You apply leverage at 1:2
- Bitcoin drops by 10%
- Ordinarily, you would have made gains of $100 on a $1,000 stake
- But, as you applied leverage at 12, your gains are boosted to $200
Take note, an unsuccessful Bitocin trade will mean that leverage boosts your losses.
Don't Miss: Ways to Make (or Lose) Money With Bitcoin (BTC)
Fees to Trade Bitcoin Online
Like all financial markets in the online space, you will need to pay a fee to trade Bitcoin. The specific fees and commissions chargeable will ultimately depend on your chosen broker Nevertheless, the main Bitcoin trading fees that you are likely to come across are listed below.
Bitcoin Trading Commission
Trading commissions are charged every time you place a buy or sell order. This is usually in percentage terms and quantified against your stake.
For example, Coinbase charges 1.49% to trade Bitcoin with another currency. This means that a $2,000 trade would cost you $29.80. Then, when you close the position, Coinbase would again charge you 1.49%.
At the other end of the scale, you have platforms like eToro that allow you to trade Bitcoin without paying any commission. Instead, it’s only the spread that you need to pay - which we discuss in the section below.
The spread is the difference between the buy and sell price that your broker charges you. In the world of forex, this is identified by the number of pips. For example, if the buy and sell price on GBP/USD is 1.3010 and 1.3001, respectively - the spread is 1 pip.
However, as Bitcoin is worth 4/5 figures (depending on where you are reading this guide) in dollar terms, the spread is identified as a percentage. For example, if the buy and sell price on BTC/USD is $10,000 and $10,050, respectively - the spread amounts to 0.5%.
So why does this matter? Well, the spread is an indirect fee that will always see your Bitcoin trade open at a slight loss.
For example, if you stake $1,000 and the spread is 1% - then your position will be worth $990 once it is executed. In simple terms, this means that you paid an indirect fee of $10.
In other words, only when your position increases by 1% and thus - covers the spread, are you back at the 'break-even' point.
Other Bitcoin Trading Fees
In addition to the above, you are likely to come across several other fees when you trade Bitcoin online.
- Transaction Fees: You might need to pay a fee to fund your Bitcoin trading account and again when you request a withdrawal.
- CFD Fees: When trading CFDs - with or without leverage, you will incur overnight swap fees. This is charged for each day that you keep your Bitcoin trade open.
Ultimately, we should stress that checking what fees and commissions you will be required to pay at your chosen broker is crucial before signing up.
Ready to dive into Bitcoin trading?
How to Trade Bitcoin (BTC) - Step-by-Step Walkthrough
If you’ve read our How to Trade Bitcoin (BTC) Guide all of the way through, we hope that you now have a firm grasp of how things work. Not only should this include the process of placing buy and sell orders, but understanding your potential risks and rewards.
If you have your finger on the button and want to start trading Bitcoin right now, follow the step-by-step walkthrough outlined below.
Step 1: Choose a Trusted Broker
If you want to trade Bitcoin from the comfort of your home - you will need to find a suitable trading broker. There are hundreds to choose from - most of which are not worth your time.
Some of the factors that you need to consider when finding a broker for your needs are as follows:
- Regulation: Does the Bitcoin trading site hold a reputable brokerage license?
- Fees: How much will you need to pay in Bitcoin trading fees and commissions?
- Payments: What payment options does the Bitcoin trading site support?
- Account: Minimums: Is there a minimum deposit and trading amount in place?
- Bitcoin Pairs: What Bitcoin pairs do the trading site offer?
- Trading Platform: How user-friendly is the broker’s trading platform?
- Mobile: Does the Bitcoin trading platform offer a mobile app?
As you can see from the metrics outlined above, there are heaps to look out for when choosing a suitable Bitcoin trading site.
If, however, you don’t have time to find a broker yourself - we would suggest exploring eToro. The broker is regulated by the FCA, ASIC, and CySEC - and allows you to trade heaps of crypto-to-fiat and crypto-to-crypto pairs commission-free.
You can also use the platform’s CopyTrading feature - which allows you to copy the trades of a successful Bitcoin trade in an automated manner.
Step 2: Open a Trading Account
Once you have chosen which broker you wish to trade Bitcoin with, you will then need to open an account. At eToro, the process takes just minutes. All you need to do is enter some basic personal information - such as your name and home address.
As a regulated broker, eToro will at some point need to verify your identity. But, if you are not depositing more than $2,250 at this stage, you can upload your photo ID later. You will, however, need to do this before you can make a withdrawal - or you plan to deposit more than the aforementioned figure.
Step 3: Deposit Funds
One of the best things about using a heavily regulated Bitcoin broker like eToro is that you will be able to deposit funds with fiat currency. This is something that unregulated cryptocurrency exchanges are unable to offer.
As such, eToro allows you to deposit funds with a debit card, credit card, Paypal, Neteller, Skrill, and bank transfer. All payment methods apart from the latter are credited instantly. The minimum deposit is $50.
Step 4: Choose BTC Trading Market
Once you have deposited funds into your eToro Bitcoin account, you then need to choose the specific market that you wish to trade.
Or, head over to the ‘Trade Markets’ area and click on ‘Crypto’. There, you will see each and every Bitcoin-related trading market offered by the platform.
Step 5: Place your Bitcoin Trade
As soon as you have clicked on the Bitcoin market that you want to trade at eToro, you then need to set up your order. We discussed order types earlier in this How to Trade Bitcoin Guide - so scroll back up if you need to recap.
We should note that at eToro - if you are going long on Bitcoin and do not apply leverage, you will be buying the coin outright. This means that you own the Bitcoin until you decide to cash it out.
If, however, you go short on Bitcoin or apply leverage, then you are trading CFDs. Although both mediums are 1005 commission-free, Bitcoin CFDs attract overnight swap fees. As such, if you want to invest in Bitcoin over several months or years, then make sure you avoid applying leverage.
Finally, confirm your Bitcoin trade and eToro will execute your order!
How to Trade Bitcoin Guide - The Verdict
In summary, learning how to trade Bitcoin effectively can take time. However, it’s a trading arena well worth considering. After all, Bitcoin is one of the best-performing asset classes - so it makes sense that more and more traders are looking to get a piece of the action.
With that said, the most important thing is that you choose a top-rated Bitcoin trading platform.
We have suggested eToro in this respect, as you will benefit from a strong regulatory standing and commission-free trading structure. Best of all, the platform is super user-friendly - so even newbies can use it!
Is trading in Bitcoin safe?
Yes - Bitcoin trading is safe, but it is crucial that you use a regulated platform. This is why we suggest eToro - as the broker holds licenses with the FCA, ASIC, and CySEC.
How do I trade in Bitcoin?
Trading Bitcoin is easy. All you need to do is open an account with a regulated trading site, deposit some funds, and then decide whether you think the price of Bitcoin will rise or fall.
Can you get rich by trading Bitcoin?
Unfortunately, there is no secret sauce when trading Bitcoin. That is to say, while some traders are able to make huge profits trading this speculative asset class, most end up failing. This is why you need to learn the ins and outs of technical and fundamental research before taking the plunge.
Is Bitcoin trading legal in the USA?
Yes, Bitcoin trading is legal in the US. In fact, the US is responsible for the most Bitcoin trading volume globally. Take note, you can’t trade Bitcoin CFDs in the US.
Can you trade Bitcoin with Leverage?
Yes - but there are restrictions on trading Bitcoin with leverage. For example, Europeans and Brits can trade Bitcoin CFDs with leverage of 1:2. Americans, however, are not allowed to trade CFDs at all - so this limits the ability to obtain leverage - at least with a regulated provider.
eToro – Best Platform To Trade Bitcoin (BTC)
eToro have proven themselves trustworthy within the crypto industry over many years – we recommend you try them out.
Virtual currencies are highly volatile. Your capital is at risk.