Bitcoin as the first cryptocurrency was designed as a decentralized currency to be used as a means of payment. Bitcoin usage since its inception has grown beyond its original purpose, it can now be utilized as a store of wealth, and more importantly, everyone can buy bitcoin and trade it as a speculative financial instrument.
As a Foreign exchange (Forex) trader, trading bitcoin might look somewhat similar because forex itself is also a decentralized market place with high liquidity. One of the few differences is that in forex, you trade fiat currencies against each other. However, the two require proper risk management skills, some degree of self-discipline, and knowing how to control your emotion.
In this piece we will be introducing bitcoin trading to forex traders, giving the similarities and differences between forex trading & bitcoin trading, comparing and contrasting bitcoin trading & bitcoin HODLing, and some strategies that can be used to trade bitcoin.
What is Bitcoin Trading?
Bitcoin trading is when you trade in bitcoin i.e. when you buy bitcoin in Nigeria for a short or long period capitalizing on the increase and decrease in its price to make a profit.
Trading cryptocurrency is not much different from trading stock or forex. For all three, you have to learn to analyze the market, be able to forecast and make decisions on when to buy and when to sell.
To become a pro trader, you must learn to control emotions and fear, learn that trading is highly risky, and you can lose everything. This is why there’s a popular saying that ‘you should only trade what you can afford to lose.’
However, Bitcoin trading is unlike both stock exchange and forex where you exchange currency pairs, instead, you exchange bitcoin.
Whenever you’re ready to trade bitcoin, all you need to is is create an account on a reputable exchange like Remitano, decide when to buy, place your order and set your price and stating the number of coins you are willing to buy and when bitcoin price hits your target you sell and cash out your profit.
From the little explanation, it might look that bitcoin trading is basically HODLing or investing in bitcoin, but the truth is no matter how similar they might look, there are few differences between the bitcoin trading and bitcoin HODLing. Some of the differences are;
- When HODLing or investing in bitcoin, you have to create a Remitano account and buy a certain amount of bitcoin in your wallet while in bitcoin trading you can exchange other cryptos for bitcoin and vice versa while you make money off the difference in prices.
- Bitcoin trading is mostly on a short-term basis while bitcoin HODLing requires you owning a certain amount of bitcoin for a long time to generate high returns over a period of time.
- When trading bitcoin, you capitalize on the price change whereas in HODLing you are mostly concerned about the accumulated returns.
- You need a strategy trading in bitcoin while in HODLing, you do not necessarily need a strategy. You buy bitcoin and set a target to sell when it gets to a particular price.
These are a few of the differences between trading bitcoin and holding it. Since our bone of contention in this piece is trading in bitcoin, let’s dig into how to trade bitcoin.
Tips about bitcoin trading
In this segment, we will dig into how to place a trade, and the kind of trades you can make. Before we proceed, some terms you need to understand. Some of them are Bid, Ask, and Spread.
When trading, the bid is the price the buyer is willing to pay. Ask is the price the seller is willing to accept and Spread is the difference between the two prices. Understanding these three terms gives room to make the easiest profits on the exchange. You find out the spread which is the difference between the bids and asks.
There is also the Limit order and stop order, limit order is an order to buy BTC and sell it at a specific price. A stop order is an order to buy or sell when the price surpasses a particular point. The combination of these two orders is called a Stop-limit order.
The better you understand these terminologies the easier it is for you to develop a strategy to use for trading. Once you have designed a strategy to use the next thing is to open an account on exchange platforms.
Read about 100 popular crypto terminologies so you can improve your knowledge on bitcoin trading.
There are lots of platforms you can trade bitcoin, each has its unique interface and system of trading. Some of the trading popular and reliable platforms are Remitano, Binance, etc.
Once you have registered on your preferred crypto exchange platform, the next thing is to validate your account by completing your KYC and immediately begin trading. However, just like we mentioned earlier, you have a structured strategy to use so you won’t gamble with your hard earned money and end up losing it.
You need to be able to analyze chart patterns, know when to buy bitcoin, when not to buy, when to take a break, when to monitor the market, and when to sell. You need to define your reason for entering a trade and always take down notes.
Let’s talk about margin trading.
Margin trading allows you to trade on leverage or borrowed capital. When you buy on margin, you pay a portion of the stock price called the margin and borrow the rest from the platform offering you the money. You basically trade with more money than you have. Margin trading is a good tool to maximize your profit. However, this tool should only be used by experienced traders as the market is highly volatile, and it could result in the loss of an entire portfolio in seconds.
Lastly, let’s briefly take a look at some comparisons between forex trading and bitcoin trading.
- Bitcoin is a less liquid market compared to forex.
- Both require a trading plane.
- Both Forex and Bitcoin carry a high risk.
- You can close and open positions on both.
- Bitcoin is more volatile than Forex
- Bitcoin is still in its infant stage compared to forex.