Bitcoin is a popular cryptocurrency that is accepted as digital money, traded as financial security and used for online transactions around the globe. It is not controlled or regulated by any government, central bank or group. Bitcoin was created in 2009 by ‘Satoshi Nakamoto’; a Japanese anonymous developer. Since then, Bitcoin became the first cryptocurrency. Today, apart from Bitcoin, there are thousands of other cryptocurrencies collectively referred to as altcoins. As the technology evolves, it has become important to learn how to trade Bitcoin as well as how Bitcoin investment works.
How does Bitcoin work?
Bitcoin is mined, transferred and spent over its decentralized network which is based on the blockchain technology. Blockchain is a public and decentralized record of transactions that is time-stamped, immutable and secured. The peer to peer computers that make up the Bitcoin blockchain network solve complex mathematics problems and confirm transactions in reward for Bitcoins. This Bitcoin creation process is called mining. It is expected that a total of 21 million Bitcoins will be mined.
Every Bitcoin is basically a computer file stored in a wallet which may be digital, paper or hardware wallet. The transaction records stored in the Bitcoin blockchain are protected through cryptography and stored on every computer on the network. Every block or record that forms part of the blockchain can be traced back to the original block. Basically, you can buy Bitcoins from a crypto exchange like Coinbase, Binance, etc. You can also acquire Bitcoins through mining or transfers to your wallet.
What are Bitcoin CFDs?
Contract for differences (CFDs) are financial contracts where the buyer agrees to pay the seller the price difference between the opening and closing prices of the underlying assets. Bitcoin CFDs are contracts made between traders and financial service providers enabling traders to speculate on the price of Bitcoin in real-time without any ownership claim of the coins. The online financial service providers present traders with the terms and conditions as well as other modalities on how to trade Bitcoin CFDs.
How to trade Bitcoin CFDs with T1Markets
T1Markets is a financial service provider that offers forex and CFDs for online trading. The brand is authorized and regulated by the Cyprus Securities and Exchange Commission (CySEC). Bitcoin CFDs and other crypto CFDs are available for trading on the MT4 trading platform provided by T1Markets. Traders must understand how to trade Bitcoin CFDs before placing their trades. Bitcoin is paired with major fiat currencies such as BTCUSD, BTCEUR. If a trader believes that the price of Bitcoin will go up, he places a ‘buy’ order on the trading platform. But if he forecasts that the price will drop, he places a ‘sell’ order.
Let us illustrate the process by creating a new trading account with T1Markets, adding funds to it and trading one 0.01 lot of BTCUSD. Below are the steps:
- Click on ‘open account’.
- Complete the forms that display to create your new account.
- Upload verification documents which include your ID card and a recent utility bill.
- Deposit your trading capital into the new account.
- Download and install the MT4 trading platform on mobile or windows desktop. You can also use the WebTrader version which require no downloads.
- Launch the MT4, select the appropriate server and login to your account.
- Locate the market watch window and double-click on BTCUSD to display the ‘order window’
- Input the trade parameters such as 0.01 under volume, stop loss and take profit values.
- Click on ‘buy’ since our analysis showed that the price of BTC will go up against the dollar.
- Monitor the trade through the ‘order’ tab.
- When you are satisfied with the trade, click ‘close’ to terminate the trade and secure your profits or losses.
Before placing a trade, Bitcoin CFD traders do not worry much about the high or low price of Bitcoin, rather, they only try to predict if the price will go up or down. Their major aim is to take advantage of the price movement irrespective of the direction. It is traded round the clock 24/7 as there is no central control for the cryptocurrency market.
Why trade Bitcoin?
One of the major reasons why anybody will want to invest in Bitcoin is its potential high returns on investment if it goes in your favour. Several investors who bought Bitcoins in 2009/2010 later sold at a profit. In Bitcoin CFDs, the constant price fluctuations give the traders the possibility of growing their capital.
Below are some reasons why you should learn how to trade Bitcoin CFDs
Huge Profit Potential
Every investor wants to make money and Bitcoin CFD traders are no exception. The price of Bitcoin is unstable and it continues to fluctuate. CFD traders have the potential to make money in any market, be it bullish or bearish. All that is required is to predict the correct price direction at a given time. With margin trading, the profit potential is greatly increased. This is a major attraction to traders. However, many traders have tried to explore the profit potentials and ended up losing their capital. It is imperative to learn how to trade Bitcoin CFDs before opening a live trade position.
Small Start-up Capital
The current market value of one Bitcoin is above $10,000. But, with Bitcoin CFDs, you do not need to have a huge capital to commence Bitcoin CFD trading. Rather, all you need to do is to deposit the required margin with your financial service provider. The required margin ranges from 1-50% of the total cost of the trade and strictly depends on the provider.
Trading at your convenience
Since no authority regulates the prices or sales of cryptocurrencies, there are no designated trading times for the cryptocurrency market. So, cryptocurrency CFDs are available for trading on a 24/7 basis. This enables traders to jump into the market any time that is convenient for them. Full-time, part-time and weekend traders all exist among Bitcoin CFD traders.
Some Bitcoin trading strategies
CFDs are very complex and pose a great risk to the trader’s capital. The price of Bitcoin and other altcoins have always been fluctuating. For this reason, it is important to learn how to trade Bitcoin CFDs using trading strategies. These are techniques that help a trader to determine the price direction of Bitcoin at any given time. Below are some of the popular strategies:
In recent times, the social media, internet and mass media houses are quick to disseminate news from the financial markets. There are financial research firms, software apps, fintech solutions that help in analyses and cryptocurrency market news. When the news breaks, traders react to it and create a rush to buy or sell thereby affecting the price of Bitcoin. It is important to learn and experiment how to trade Bitcoin CFDs from the news properly, else, one wrong prediction can wipe your account.
This is a trading strategy where a trader opens a trading position, holds it for a few minutes or even seconds, then, he closes the position. This strategy aims to take advantage of small market movements. The scalper bases his decisions from technical analysis principles which believe in studying the price charts with the hope of identifying trends and patterns that are bound to repeat. Typically, Bitcoin CFD scalpers trade several times a day with the hope of aggregating small profits into a substantial figure.
This is a strategy where the trader opens a Bitcoin CFD position and holds it for several days or weeks. This is done with the aim of capturing the market swings that span across days or weeks. The strategy is normally based on technical analysis or a combination of fundamental and technical analyses. This method of cryptocurrency trading requires substantial trading capital, patience and in-depth knowledge of analytical methods.
Risks associated with trading Bitcoin CFDs
Generally, CFD trading comes with risk of losses. It is important to understand how to trade Bitcoin CFDs bearing in mind the risks involved and how best to mitigate the risks and optimize the chances of making good trades. Below are some of the identified risks associated with Bitcoin CFD trading:
The cryptocurrency market is generally volatile. It is unregulated and unaffected by the economy of any single country. Bitcoin prices are always fluctuating as buyers and sellers are trading the crypto coins on a 24/7 basis. Bitcoin CFD traders only predict the market direction and do not hold assets. But, the market is absolutely unpredictable and the direction can reverse at any time resulting in a loss. Bearing this market risk in mind, traders are expected to learn how to trade Bitcoin CFDs using risk management tools and trading plans.
Margin trading is one of characteristics of CFDs. This enables traders to open trade positions much higher than their trading capital. For example, if a trader’s account balance is $2,000 and his financial service provider allows a margin of 20%, it means that he can open trades worth $10,000. Margin trading gives a Bitcoin CFD trader more capital so that he can open more positions with a potential to grow his trading capital. But, sadly margin trading also magnifies losses. With one bad trade or market reversal, the trader’s accrued profits including his trading capital can be wiped off in a jiffy.
Bitcoin is the first, most popular and the biggest cryptocurrency by market capitalization. After its successful launch, thousands of other cryptos have emerged and cryptocurrency trading has been on the increase. Bitcoin CFDs are a popular form of derivative trading because of its convenience, small capital start-up and huge potential on returns. However, it is very risky and requires traders to learn how to trade Bitcoin CFDs, and gain experience in order to even stand a chance of possible success.
T1Markets is a financial service provider that is authorized and regulated by the Cyprus Securities and Exchange Commission (CySEC). The brand provides access to trade Bitcoin CFDs and over 300 other CFDs for trading on the popular MT4 trading platform. Below are some of the reasons why you should choose T1Markets:
- Lightning speed trade executions.
- Margin trading is available.
- All trading is via the MT4 trading platform which is available on the web, desktop and mobile apps.
- Comprehensive educational resources are provided to assist tyro traders.
- The client support desk is available 24/5 to help resolve issues.
What is the difference between Bitcoin CFDs and investment?
The difference lies in market exposure. Bitcoin CFD traders only predict Bitcoin’s price movement at any point in time without taking ownership while Bitcoin investment means buying and owning the Bitcoins in wallet hoping to sell in future at a profit.
Which is better, Bitcoin investment or Bitcoin CFDs?
None is better because both Bitcoin trading options are very risky. It all depends on the investor, his risk appetite, knowledge, skills, trading capital, discipline and patience. For example, Bitcoin CFD traders have the possibility of making profits in any market, at any time and it requires less capital because of margin trading but requires in-depth analysis and trading knowledge. Fortunately, there are numerous online resources that give the knowledge of how to trade Bitcoin.
But, at the moment, Bitcoin investment is capital intensive and requires patience. Many investors stored up their Bitcoins for years only for it to be stolen by hackers, exchange attacks or lost through hardware failures or wrong addressing.
Can US citizens trade Bitcoin CFDs?
Unfortunately, US citizens are banned from trading Bitcoin CFDs and indeed all CFDs. This is because the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) prohibits US citizens from trading CFDs because they are not traded through regulated exchanges like the NYSE, CME, NASDAQ, etc.
Can I make a lot of money from trading Bitcoin CFDs?
Though very difficult and unlikely, we cannot rule out the possibility of making money through Bitcoin CFD trading. But, with adequate trading knowledge, huge capital, exceptional trading skills, good money management and discipline, a trader may likely grow his invested capital through Bitcoin trading. CFDs are complex instruments and very risky. It is not suitable for everyone as many retail investors actually lose money through CFD trading.
Are CFDs safe?
The simple answer is no. If you have a CFD account and you are not opening trade positions, then it is safe. But, once you are trading, you are taking a risk and your funds are not safe.