Get to grips with the basics of how to trade bitcoin with our step-by-step guide.
How to trade bitcoin
As the world’s first cryptocurrency, many see bitcoin as the most likely contender to mount a serious challenge to traditional (or ‘fiat’) currencies. Considering its price history, though, it looks like there’s going to be lot of volatility along the way.
You can start trading bitcoin by following these four steps:
Ways to deal bitcoin
There are two ways to deal bitcoin: buy the cryptocurrency itself in the hope of selling it on at a profit, or speculate on its value without ever owning the token. The latter is how CFDs work.
A CFD enables you to trade a contract based on prices in the underlying market. It is a leveraged product, meaning you can put down a small initial deposit and still gain the exposure of a much larger position. This can magnify your profits, though it can have the same effect on your losses.
Do I need to use an exchange to trade bitcoin?
When you trade bitcoin CFDs, you never interact directly with an exchange. Instead, you trade on our buy and sell prices, which we source from a number of exchanges on your behalf. In order to take a position on bitcoin’s price, then, all you need is an IG trading account.
Bitcoin exchanges work the same way as traditional exchanges, enabling investors to buy the cryptocurrency from or sell it to one another. But there are a number of advantages to cutting them out of the equation entirely:
- They lack proper regulation, public records and the infrastructure needed to respond quickly to support requests
- Their matching engines and servers are unreliable, which can result in the suspension of markets or reduced execution accuracy
- They impose fees and restrictions on funding and withdrawing from your exchange account, while accounts themselves can take days to acquire
By trading bitcoin CFDs, you also gain significantly improved liquidity at your chosen touch price. When you buy and sell direct from the exchange, you generally have to accept multiple prices in order to complete your order.
What moves bitcoin's price?
While bitcoin’s volatility makes the cryptocurrency an attractive opportunity, it also makes it a particularly risky market to speculate on. Its price can shift significantly and suddenly – and since the bitcoin market operates around the clock, this is liable to happen any time of day.
As a decentralised currency, bitcoin is free from many of the economic and political concerns which affect traditional currencies. But as a market still in its adolescence, there is a lot of uncertainty entirely unique to the cryptocurrency.
Any one of the following factors could have a sudden and significant impact on its price, and as such you need to learn to navigate the risks they may open up.
Bitcoin supply
There may be a finite supply of bitcoins – 21 million, all of which are expected to be mined by 2040 – but even so, availability fluctuates depending on the rate with which they enter the market, as well as the activity of those who hold them
BTC Market cap
The value of the bitcoin market – and how valuable it is perceived to be – both influence whether traders will look to get in on a surging opportunity, or short the latest bubble
Bad press
All currencies are affected by public perception, but no more so than bitcoin, whose security, value and longevity is in question even at the best of times
Integration
Bitcoin’s profile – and confidence in traditional currencies – will depend on its integration into new payment systems, crowdfunding platforms and more
Industry adoption
Bitcoin is yet to be embraced by businesses across the globe, and it remains to be seen what impact a more significant standing on the corporate stage will have
Key events
Any number of major events could have serious implications for the cryptocurrency, including regulation changes, security breaches, macroeconomic setbacks and more
Bitcoin trading strategies
Day trading
Take a position based on anticipated short-term movements, and close it out at the end of the trading day.
The strategy for you if: you want to respond to short-term opportunities in the bitcoin market, in light of developing news or emerging patterns.
Scalping
Place frequent, intraday trades on minor price movements.
The strategy for you if: you want to put yourself in a position to make small, continuous profits, rather than wait for one significant breakout or breakdown.
Swing trading
Catch trends the moment they form, and hold onto the position until the trend runs its course or shows signs of a reversal.
The strategy for you if: you want to capitalise on opportunities from market momentum.
Automated trading
Automate your trading processes to react to changeable market conditions on your behalf.
For you if: you’d prefer to be a passive trader.
Steps to trading bitcoin
1. Open an account
To trade CFDs, you’ll first need an IG trading account. It only takes a few minutes to get set up, and you can take your first position as soon as you’ve added funds.
Keep in mind that, unlike if you were to buy and sell bitcoin, you won’t need an account with a bitcoin exchange. That’s because you trade on the prices offered we derive from multiple exchanges on your behalf.
2. Build a trading plan
You’ve chosen a trading strategy, but if you’re new to the markets you might want to consider a trading plan as well. A trading plan can help you make objective decisions even when the stake are high, so that you don’t leave trades open too long – or close them too early.
Here are a few tips for creating a plan:
- Set out what you want to achieve from your trading, broken down into short and long-term goals
- Decide your acceptable risk from each trade, as well as how much you are willing to risk overall
- Pick a risk-reward ratio, so you know how much potential profit you need to justify your potential loss
- Choose which markets you want to trade. Do you want to start with just bitcoin, or try a few more?
3. Do your research
Before you start trading, you need to make sure you’re up to speed with the latest bitcoin news, in order to best understand what’s next for the cryptocurrency’s price.
When it comes to interpreting bitcoin’s behaviour, charts can also be an invaluable tool. Past data can help you make sense of how the market is moving, while comparing timeframes may provide a closer insight into emerging trends and patterns.
4. Place a trade
Once you’ve settled on your position, you’ll need to place a trade using our web trading platform.
You’ll enter the amount you want to stake on your trade in the deal ticket. You can also define your close conditions: set a stop to close your position when the market moves against you by a certain amount, or a limit for when it moves in your favour. Stops and limits are central to good risk management.
If you expect bitcoin to rise in value, you'll then ‘buy’ the market. If you think it will fall, you'll ‘sell.’
To close your position, you simply place the reverse of your original trade. So if you bought in the first instance, you’ll sell the same amount; if you sold, you’ll now buy. We’ll automatically fill your deal ticket with the position size, meaning you simply need to click ‘buy’ or ‘sell’ to close your trade.
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There's no minimum balance to open an account, it takes less than five minutes, and there's no obligation to fund or trade.
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