How To Trade Bitcoin

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 lot of volatility along the way.

You can start trading bitcoin by following these four steps:

1. Decide how you want to deal bitcoin
2. Learn the factors that move bitcoin’s price
3. Choose a bitcoin trading strategy
4. Make your first bitcoin trade 

Ways to deal bitcoin  

There are two ways to deal bitcoin: buy the cryptocurrency 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. 

A CFD 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?

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 IG 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.

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 decentralised 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 

Bitcoin trading strategies

Day trading

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.

Scalping

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.

Swing trading

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 capitalise on opportunities from market momentum.

Automated trading

Automate your trading processes to react to changeable market conditions on your behalf.

For you if: you’d prefer to be a passive trader.