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Starter Pack for Bitcoin Enthusiasts: How to Buy or Trade Bitcoin?
(12 September 2019)

 

Bitcoin remains a highly sought-after financial instrument, years after its breakthrough introduction as a contrarian investment option. After generating stratospheric returns in 2017, Bitcoin prices gradually tapered off and stabilized for much of 2018. Now, Bitcoin is back in the reckoning. Thanks to tremendous interest from traders, investors, and enthusiasts, the world's premier cryptocurrency has reclaimed its mantle as ‘King of Crypto’ with outsized returns in 2019.

Starting at a price of $3,882 on January 2, 2019, Bitcoin or BTC broke through multiple resistance levels on its march towards the vaunted $10,000 mark. All cryptocurrencies are subject to extreme volatility, evident with whipsaw activity on a daily basis. Bitcoin Bulls are solidly behind the world's first cryptocurrency, with pricing consistently remaining above $8,000 per unit BTC since April 2019.

For those interested in trading Bitcoin, or investing in Bitcoin for the long haul, it couldn't be easier. With some 2,704 digital currencies operational across 20,540+ markets, it's interesting to point out that Bitcoin’s share has swelled to 69.8% with a total market capitalisation of $180 billion +. While altcoins are being brought to market in their droves, this has not diluted the appeal of Bitcoin. On the contrary, the sheer number of alternatives has pushed even more traders and investors back to Bitcoin.

Your point of departure as a BTC stakeholder is a reputable cryptocurrency exchange, or trading platform. Since digital currency trading is a new-age phenomenon – relatively speaking – the credibility, transparency, and reliability of trading platforms and exchanges rests with the user base, and not necessarily with the regulatory authorities. However, it is always preferable to go with a regulated authority. To this end, many highly respected trading platforms have emerged, notable among them Plus500 which is a platform who offers to trade Bitcoin.

How do you buy Bitcoin?

There are many different ways to profit off Bitcoin’s price movements. One of the most popular options is the derivatives trading instrument known as a CFD. A Bitcoin CFD (contract for difference) allows registered traders to go long or short on the underlying asset. If you are bullish on Bitcoin, you would buy the asset. If you are bearish on Bitcoin, you would simply sell a Bitcoin contract.

Profitability depends upon several factors, notably which way the market moves. If the underlying asset in this case Bitcoin, moves in the direction of your trade, it is possible to finish in the money. If the asset moves in the opposite direction, you could lose out. Several important factors impact profitability, namely the spread (this is the difference between the buy price and the sell price), the overnight rates, the maintenance fees, and any broker fees which you may be required to pay. Once those fees have been calculated, simple arithmetic can determine profitability.

The CFD trading option for buying and selling Bitcoin involves the use of margin and leverage. Margin determines how much money or funding is needed upfront in order to open a trade. Brokers with derivatives trading instruments will typically allow clients to put down a small percentage of the overall trade – say 5% – to make this possible. Leverage is basically how much capital is ‘available’ to the client in order to facilitate trading. With margin of 5%, leverage of 20:1 is available. If the margin rate was 1%, that means the brokerage is forwarding you 100:1 for your trade.

A caveat is in order when you buy or sell Bitcoin using leverage: the more you use of the broker’s money, the more indebted you may be. Given that these are extremely volatile assets to trade, it pays to do your homework before you trade cryptocurrencies. Authorized and regulated brokers offer additional peace of mind to traders by way of 0% commissions, competitive spreads, and negative balance protection. This does not discount the need for intensive research and analysis regarding factors which may impact your Bitcoin trades. These include the following:

- General supply and demand for Bitcoin
- Activity on the Bitcoin futures market with the CME Group on the CBOE
- High profile CEOs announcing the implementation of blockchain-based technology supportive of Bitcoin and crypto
- Major announcements on crypto by regulatory authorities such as the Federal Reserve Bank, the European Central Bank, IMF, the Bank of Japan, the Bank of England, et cetera
- Major announcements made by the tax authorities such as the IRS, HM Revenue and Customs, SARS, or the European Commission Taxation and Customs Union.

The raison d'être for having created Bitcoin was to provide everyday folks with an alternative to the fiduciary system controlled by governments and central banks. The anonymity, privacy, security, cost effectiveness, and speed with which blockchain-based transactions can be processed is astounding. Today, Bitcoin investments are regarded as hedges against volatility in the financial markets, notably the stock market. Many new-age investors actually consider Bitcoin to be somewhat similar to gold as a hedge against stock-market volatility.

Tools and Resources to Assist New Bitcoin Traders

On a typical trading platform like the aforesaid Plus500, Bitcoin is traded against another currency – fiduciary (fiat) or crypto. For example, the pairs that are available include BTC/USD, and ETH/BTC. This provides the trader with a benchmark against which to base price movements. When BTC is traded against the USD, the price in dollars can easily be ascertained for buying or selling purposes. This brokerage offers leverage of 1:30 on cryptocurrencies like Bitcoin.

This means that a $1,000 capital injection is worth the equivalent of $30,000 in trades. Responsible brokers will limit the leverage on crypto trading to protect their clients from the extreme volatility inherent in this market. It is always a good idea to adopt the most sensible risk-management strategies when trading crypto-assets. Minimize leveraged trades and practice demo trading to get a feel for the market before full immersion in real-money trading activity. Various tools and resources are available to mitigate losses in the form of trailing stops, guaranteed stops, close at loss, or close at profit.



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