Whether you're simply curious about how to trade Bitcoin or considering using Bitcoin trading to diversify your investment portfolio, we have the information you need. Read on to learn more about what Bitcoin is, where to buy Bitcoin, and some methods for how to trade Bitcoin.
What Is Bitcoin?
Bitcoin is the most well-known and popular type of cryptocurrency. Cryptocurrencies are any digital currency that rely on cryptographic principles for security, accuracy, and the generation of future currency. Other types of cryptocurrency include Etherium, Litecoin, Dogecoin, and many more. In theory, anyone can create a cryptocurrency, but of those on the market, Bitcoin is both one of the oldest and most enduring.
Bitcoin is a decentralized currency that relies on the Blockchain infrastructure. The Blockchain infrastructure allows for secure transfers but also keeps institutions like banks out of the picture.
Where Does Bitcoin Get Its Value?
Occasionally people who are new to the cryptocurrency world wonder if Bitcoin is real money. The simple answer is yes. There is a finite amount of Bitcoin in the world, and it has equivalents with every major global currency.
There are many ways to approach Bitcoin trading for profit, but most traders profit when the value of Bitcoin rises—a concept known as appreciation. For example, if you spend $100 on Bitcoin, you can wait until that same investment is worth $150 and make an impressive profit.
How Do I Buy Bitcoin for Trading?
Before you can understand how to trade Bitcoin, you must first learn how to buy Bitcoin. Bitcoin may also be mined, but this requires the use of specialized mining devices and a much higher level of technical skill.
Fortunately for beginners, there are several safe, reliable, and convenient methods for simply converting U.S. Dollars or any other currency to Bitcoin. Many of these methods may also have options for selling your Bitcoin.
No matter how you buy your Bitcoin, you will need to store it in a digital wallet app. Each of the options described below allows you to securely store your Bitcoin in the wallet of your choice. When deciding which method to use, consider the costs involved with each as well as other details, like waiting periods.
Method #1: Use a Bitcoin ATM
Bitcoin ATMs allow you to insert U.S. Dollars (or other traditional fiat currency) and receive the equivalent amount of Bitcoin. In general, these are convenient and user-friendly ways to convert traditional currency to Bitcoin. Transactions are typically instant.
There are several providers of Bitcoin ATMs. You may have to create an account with the ATM provider that connects to your phone number and email address. Some will also require you to present a photo ID, though this is typically for your own security and kept confidential by the company.
Bitcoin ATMs charge a fee for converting your currency. Typically, these fees range from 5-12%. You can perform online research and even call the vendor to confirm the exact fee for your transaction. Higher volume transactions tend to have lower fees, but there are also usually limits on how much
Bitcoin you can buy or sell at a given ATM in a 24-hour period. Convenience is a major reason Bitcoin ATMs are growing in popularity, and many investors are willing to pay higher fees for these instant transactions. Another benefit of the Bitcoin ATM is that you can sell, or "cash out" part or all of your Bitcoin stash at any time. If you live in a major city, you may have your pick of a variety of Bitcoin ATM providers. However, these tools are not yet universal.
Method #2: Use a Bitcoin Exchange App
Many of the exchange apps are also trading platforms. If you want to buy and sell your Bitcoin on the same platform, this is one detail to look into when deciding which exchange to use. Examples of these platforms include
Each of these examples allows you to buy Bitcoin with your credit card, debit card, or bank account. Simply click "Buy" within the app to buy Bitcoin. You can also use these apps to sell your Bitcoin when you are ready.
The major benefits of using these exchanges are accessibility—anyone can use them from any location—and convenience. While most of them allow you to buy Bitcoin from your phone, there may be a 1-3 waiting period for apps like Circle, which draw directly from your bank account.
Since the value of Bitcoin can change dramatically within a matter of hours, this is a factor you will want to consider when developing your trading plan and deciding whether to use an exchange.
Method #3: Make a Peer-to-Peer Purchase
You may choose to buy Bitcoin from another person who has invested in the cryptocurrency. Online platforms like LocalBitcoin can help you find individuals looking to buy and sell Bitcoin near you. Generally, these platforms will show how many exchanges a user has performed, and some even allow for reviews.
Look for someone who is experienced. Even if you do not opt to buy Bitcoin with peer-to-peer purchasing, you may decide to sell your Bitcoin this way. Reputation is everything on peer-to-peer platforms. If you choose to sell on such a platform, you may have to charge a lower rate than a more established seller.
How to Trade Bitcoin: A Quick Guide
As with any investment, you will do best if you perform a lot of research into how to trade Bitcoin and the methods available to you. Begin conservatively and learn everything you can about how to trade Bitcoin effectively. As your knowledge grows, you can refine and expand your investing strategy. Follow these steps to begin.
Step 1: Determine Your Trading Goals
Generally it is best to start small if you are new to Bitcoin. While you are still refining your methods for how to trade Bitcoin, consider doing a trial run with an amount of money you can afford to lose. Even trading $200-$500 worth of Bitcoin will help you gain experience to learn from.
You will also want to set a clearly defined goal for your trading. How much do you hope to make, and in what period of time? Write down your goal, how much you're investing initially, and stick to your plan.
Step 2: Buy Bitcoin
Use any of the methods described above to purchase your pre-determined amount of Bitcoin.
Step 3: Decide Which Platform You Will Use to Sell Your Bitcoin
Some of the research you performed when deciding how to buy Bitcoin will also serve you here. However, you may choose to store your Bitcoin in a wallet after making your initial purchase, then choose the most profitable way for you to sell when the value of Bitcoin is higher than when you purchased it.
Step 4: Track and Evaluate If Your Trading Methods Are Meeting Your Goals
Use the time-frame you established in Step 1 and set a time to check in to see how your trading methods are going. Are you making a profit? If so, try to figure out what is working for you.
The same is true of loss. If you find you are losing money, the next step can help you determine why so that you can make the appropriate adjustments to your Bitcoin trading strategy. If you do lose some money, understand that this is normal. Failure is only failure if you don't learn from it.
Step Five: Ask for Help
If you're lost or unsure what is and is not working about your trading strategy, don't be afraid to ask for help. While there are professionals who specialize in Bitcoin, particularly with more advanced uses such as holding Bitcoin in a self-directed IRA, much of the information you will need for basic trading is freely available online.
Find someone who has successfully done what you hope to achieve, and if necessary, pay them for their time. Mentorship is critical to any kind of investing plan.
Conclusion: Understand Your Risks and Opportunities
As you can see, there is a lot to know when you are learning how to trade Bitcoin. Understanding both the risks inherent to Bitcoin and the changing landscape of investment opportunities is crucial if you want to be successful in your endeavors. There are more sophisticated trading methods you may choose to use, but it is essential to get the basics of buying low and selling high down first.
Keep in mind that Bitcoin's value is incredibly volatile, meaning this is a high-risk and high-reward investment. If you choose to day trade or swing trade to capitalize on the cryptocurrency's volatility, you may have to watch values like a hawk.
Whether doing so is the best expense of your time and money is a deeply personal decision.
That said, Bitcoin offers investors exciting opportunities. You may find that cryptocurrency is a valuable addition to your portfolio. If you're willing to learn, you will be able to earn.