A Beginner's Guide to Trading Bitcoin
The introduction of a currency doesn’t come along very frequently. Historically speaking, the decision to create a new currency is not taken lightly by authorities. Usually, this move needs to be backed by valid reasons or a critical situation. But that was not the case for Bitcoins’ introduction to the global market. That’s why the creation of Bitcoin, which is a relatively new digital currency, is considered a novelty on many levels.
Cryptocurrency is a digital asset that is used for transactions. Bitcoin does not rely on a central authority such as a central bank and was first issued in 2009 by Satoshi Nakamoto. Back then, the value of Bitcoins was completely worthless. However, the price of the new currency has kept rising. At the time of writing, Bitcoin is valued at $57,965.
Despite pushback from centralized authorities and regulatory bodies, Bitcoin has gained a lot of ground and increased in popularity. Many businesses and organizations are now adopting it and adding it as a means to purchase services. So how can you trade Bitcoin and benefit from its unexpected rise?
Understand How Bitcoin Works
The Technology and Process
The cryptocurrency can now be spent, invested, saved, and traded. All transactions use private codes and signatures that are protected with cryptography. Every exchange is duly recorded on a public ledger called a blockchain. Thus, transactions are effectively a transfer of value between digital wallets. These include a piece of data called a seed. That’s how proof of transfer and ownership is ensured.
Therefore, it is a security against any alteration. In addition to this safety net, transactions are processed through a consensus system known to traders as mining. Indeed, mining is utilized to confirm transactions by adding them to the block after being verified once again by the network. Finally, once purchased, Bitcoins are stored in a digital wallet which is either in the cloud or on a computer. Wallets represent the virtual equivalent of a bank account for cryptocurrencies. Thus, using your wallet you can send or receive Bitcoins, pay for services or products.
The Market
The sheer number of daily Bitcoin transactions has increased exponentially. Now there are more than 35 exchanges around the world that execute Bitcoin deals. However, the largest and highest-ranked Bitcoin exchanges are in the United States. Although each exchange has its own standard bid/offer spread, the latter is calculated as a percentage. Thus spreads are quoted for dealing 10 and 100 Bitcoins. In fact, the percentage varies at every exchange. While Bitcoin trading hours are around the clock all days a week, many exchanges take a short break on Sundays.
How to Obtain Bitcoin
Ultimately, if you are a Forex trader and decide to start trading Bitcoin, you will notice that the digital currency’s market is more expensive. That’s mainly due to the surge in popularity. However, there is a cheaper and slower way to obtain Bitcoin, and that’s done with mining. In order to mine Bitcoins, you need a dedicated computer and special software to decrypt Bitcoin blocks. This falls under a long-term strategy because the process is slow. It could take a year for the computer to complete calculations. Nevertheless, the price of Bitcoins makes the wait worthwhile for many investors.
Another option for obtaining Bitcoins is to join a mining pool. This means getting together with a group of people who have mining rigs to break the work into pieces. Once mined, Bitcoins are equitably shared by the group according to each person’s contribution.
Of course, opening an account with a Bitcoin exchange is still the easiest and fastest way to get your hands on the precious digital currency.
Why Become a Bitcoin Trader
The extreme volatility of Bitcoin is way higher than that of any national currency on the market. This represents both a challenge and opportunity. The key to trading this cryptocurrency is to avoid taking excessive losses and know when to exit a position. While this advice may seem simple enough, it is very difficult to apply under real-world circumstances.
Moreover, if you are considering trading Bitcoin, an important element to remember is the limited number of coins that can be mined. Therefore, the rarity of the asset is bound to lead to further price increases in the future. Here are some of the reasons why many traders consider trading Bitcoin to be beneficial:
24/7 Trading
Web-based Bitcoin exchanges allow for remote trading any time of the day.
High Volatility
With a price pattern that boggles everyone, Bitcoin has experienced extremes in its value. However, this is precisely one of its major attractions.
Global Currency
Bitcoin operates in more than 90% of countries across the globe. This means anyone can invest in it. Moreover, no matter where you are, you can use digital currency to purchase goods and services.
Positive Growth
The first cryptocurrency to be established, Bitcoin has been around for a decade. While it had a bumpy start and faced a lot of backlashes, the coin worked its way up by continuously improving the trading process and security measures.
A Final Thought
At last, here are some time-tested tips for beginners and advanced Bitcoin traders:
- Don’t invest more than you’re willing to lose.
- Create a comprehensive trading plan.
- Don’t leave your coins on an exchange.
- Transfer your Bitcoins to an offline wallet to store them safely.
- Avoid acting upon a whim and control intense emotions.
- Never stop learning!
Want to Trade Cryptocurrencies?
Whenever a client trades cryptocurrencies on the OspreyFX trading platform, they are in fact trading on the price movement of the chosen digital coin, rather than physically purchasing the currency. Become Part of the Digital Currency Movement.