Understanding bitcoin trading and investing
Trading in any asset is often shown in Hollywood as something that people do to turn up some instant riches. Hollywood often gives us all a warped image of the reality of any kind of work. They have done a big job of making trading appear a lot more glamorous and an instant path to big riches. In some films, it appears that trading is almost like playing a video game but with real money at stake. That is just not the case. Trading is a serious business that always requires a lot of focus and attention. Those who excel at it tend to be incredibly disciplined and not interested in a quick score.
By Anton Kovačić
Most of us have heard of trading as a concept that is used in the broader stock market. It turns out that people trade in all kinds of assets (including Bitcoin), but the stock market is the one most known in popular culture. The advent of cryptocurrency trading adds yet another way to make money via trading, but it also means that trading in this market is a lot newer than in many others. This means that some of the strategies and ideas are not as well tested as they are in many other markets.
Trading As A Concept
Trading to make a profit has changed a lot over human history. Trading was once something that people did when one party had goods that the other party needed. They would come to terms and trade goods with one another so that both benefited. Today, the trading of financial instruments is a lot more common. Those instruments are a lot more complex, and not everyone comes away with something of value when it is all said and done.
It used to be the case that the only individuals who participated in trading markets were those who already had significant amounts of money. They traded among each other and tried to make a larger bit of wealth for themselves. However, that has changed a lot in recent times including with the inclusion of cryptocurrencies as an instrument of trade. It doesn’t take much more than a few dollars to begin trading in cryptocurrencies, and there is no central authority that is regulating it. Thus, just about anyone can get involved.
What Is Different Between Investing And Trading?
You should know that there is a difference between investing and trading. The two concepts are connected, but they are not one in the same. You should understand the difference between the two so that you are not doing one while you think you are doing another. The trader and the investor have different goals for their money.
Investing involves putting money to work in a long-term fashion. The investor sees an asset at a price today that they believe will be worth considerably more money in the future. They pay the price today so as to make a gain at some point in the distant future. They build profit in a slower fashion, but it can result in considerably more profit and with less risk than trading.
Investing means that a person is not all that concerned with what the immediate price movements are on the asset that they are buying. Trading is different. The trader will look for any short-term trends that they can find to capitalize on small movements in the value of an asset to hopefully make a profit for themselves.
Those who decide that they want to trade have to be prepared to put a decent amount of work into what they are doing. They need to be able to follow the news related to the asset that they are trading in. They need to be able to adapt to changing news, and they must be ready to change their mind if necessary, as conditions warrant.
The buying and selling of Bitcoin is obviously what constitutes Bitcoin trading, but there are more dimensions to it than just that. There is a lot of volatility to the price movements that are seen in Bitcoin. The world is still adapting to this currency, and not all traders are sure of how they should treat it. The true value of Bitcoin is constantly being argued over. The manifestation of that argument is played out in the public markets.
The goal of any trader is to purchase Bitcoin when it is at a low point in value and attempt to sell it as the price starts to climb on it once again. In the case of Bitcoin one has to trade their fiat currency into as much Bitcoin as the can possibly get their hands on. Thus, they are attempting to make a trade that will reasonably work in their favor if Bitcoin starts to climb in value once again.
The value of Bitcoin has rocketed around to different prices in a short period of time. Based on some of the price charts that are available to anyone who wants to take a look at them, one can see how Bitcoin rose from around $100 per coin in mid-2017 to a high of nearly $20,000 per coin at the very end of 2018. It was definitely an interesting time to be involved with trading Bitcoin.
Trading in Bitcoin takes place all around the world at all times, so there is always a trade to be made. Just like any other currency, the value of Bitcoin is constantly in flux. It is entirely possible to find a great time to trade no matter what your typical schedule may be.
Exchanges facilitate the trading between Bitcoin buyers and sellers. These exchanges include Binance, BitStamp, Coinbase, Kraken, and ShapeShift. Each has their own advantages and disadvantages. Most people simply select an exchange based on which one makes them feel the most comfortable.
No Single Price
Did you know that there is not a singular price for Bitcoin all around the world? The price that one pays for Bitcoin is entirely determined by which exchange they are using. Some exchanges have better prices than others for the buyer or seller completely dependent upon what other buyers or sellers are doing on that exchange.
It is critically important to understand what the factors are that influence the price of Bitcoin. News events as well as the fundamentals of Bitcoin all weigh in to determine what price traders will pay for Bitcoin. Remember, there is a finite amount of Bitcoin, so it makes each individual coin worth more and more as demand for the currency grows.
Why You Should Trade Bitcoin
There are a lot of big advantages to trading in Bitcoin rather than other assets, and you should have an understanding of what those advantages are. After all, you may decide that you want to incorporate at least some Bitcoin into your portfolio.
It doesn’t take much to get started with Bitcoin. They can be traded in as small of a piece as 100 millionth of a piece. That means that you can get in on the action for a very small investment on your part.
There are rules related to Bitcoin in place that ensure that the market will not be flooded with new Bitcoins that dilute the value of those coins over time. That has happened repeatedly over the years with other currencies, but it will not with Bitcoin.
Like always, there are risks associated with trading. This doesn’t stop because you are trading Bitcoin. If anything, the risk is higher in some ways because of the increased volatility of Bitcoin pricing compared to other assets. It is important to remember that it is best to consider your situation and speak with a financial expert before making any financial decisions that could impact your larger life.