Bitcoin and Crypto Margin Trading Exchanges (UPDATED 2020)
Last Updated Jan 6, 2020 @ 12:57
What if you could leverage your long and short positions on Bitcoin by 2X, 10X or even 100X, without having actually to hold the capital required to open such positions?
Welcome to our margin trading guide. In this guide, you will learn what margin trading in Bitcoin and crypto is, how does it work, what exchanges allow margin trading, and more.
What is Bitcoin Margin Trading?
Bitcoin margin trading, in simple words, allows opening a trading position with leverage, by borrowing funds from the exchange.
For example, if we opened a Bitcoin margin position with a 2X leverage and Bitcoin had increased by 10%, then our position would have yielded 20% because of the 2X leverage. With no leverage, it would have been only a 10% ROI.
Margin leverage can also be 25X and even higher, despite the risk, the same position as described above would have yielded 250% (instead of 10% with no leverage).
How does Bitcoin margin trading work?
In most cases, the exchange provides loans to the traders so they can enlarge their capital to be used for margin trading. This way, traders can open positions with high leverage. The exchange doesn’t have many risks since every position has its liquidation price, which is based on the level of leverage.
Want to make gains while Bitcoin price is decreasing? It’s possible. A short position on Bitcoin basically means that we believe in a coming-up drop in the price of Bitcoin. Technically, short positions work by selling the base asset first, in this case, Bitcoin, and then later buying it. You don’t have to worry; the exchanges do this process automatically for us.
The second role for shorting Bitcoin is the option to hedge a cryptocurrency portfolio. For example, if the crypto portfolio consists of 5 Bitcoin and we want to hedge against the risk of a possible Bitcoin’s decline, a 10X leveraged short position could be opened, and it would be equivalent to 40% of that Bitcoin portfolio.
To open the position, the amount required is only a tenth of it (10 times leverage). That means that we need to hold only 0.2 Bitcoin on the margin exchange in order to hedge 40% of a portfolio valued 5 Bitcoins. Another advantage is the fact that only a small amount is stored on the exchange itself. As you might notice, from security reasons, it’s better to store the least amount possible on crypto exchanges.
Bitcoin Margin Trading Tips
Since margin trading is risky, hence, it’s not recommended for beginners in crypto trading, we had gathered some must-read trading tips:
Always start trading with small amounts: First-day margin trading? then always start small. Get the necessary confidence you need before jumping into the deep raging water of the leveraged trading.
Don’t go all-in at once: Unless you’re sure about your trading skills, it’s better to divide your position into portions, and create a ladder of prices. This way, you can reduce the risk while averaging down the entry price of the position. The same is true for taking profit. You can set-up a ladder of take-profit levels.
Understand fees and liquidations: Always know how much you are paying for fees and what type of fees you are paying. Trading on margin carries ongoing fees, make sure they don’t eat up your profit. The same is true for the liquidation price; you should know that number in case the position is reaching there.
Risk Management: When trading on margin, set clear rules of risk management, beware of excessive greed. Take into account the amount you are willing to risk, keeping in mind that it can be lost entirely. Set levels for closing positions, taking profit levels, and the most important – set up stop-loss levels.
Price manipulations and short/long squeeze: In an unregulated market like Bitcoin, it’s not rare to see occasional short and long squeezes. When the number of short or long positions is high, it means that a market mover can make easy money when creating an opposing price move, forcing those positions to liquidate (and push the price even more in that direction). The following image describes a classic event of a long squeeze followed by a short squeeze. a classic manipulation of the Bitcoin price.
A short squeeze: The green candle marked is the forced closure of short positions before going down
Short-term trading: Cryptocurrencies are considered to be very volatile assets. Margin trading of cryptocurrencies doubles the risk, and even more. Therefore, try to make short-term trading leveraged positions. Moreover, although the daily fees or margin position is negligible, in the long term, the fees can amount to a significant sum.
Pay attention to fundamentals: Major events surrounding the crypto space, like Bitcoin ETF decisions, SEC regulations and so on, can have a significant effect on the price of Bitcoin. Even though many traders rely only on technical analysis, keep in mind that those events might have a critical impact on the crypto market.
Extreme volatility – don’t leave the screen: Crypto trading sometimes has extreme fluctuations that occur in both directions, creating candle wicks. The risk, in this case, is that the deep will touch our liquidation value. It could happen where the leverage is relatively high, so the liquidation value is relatively close.
In fact, you can take advantage of these deeps and try to set closing target positions, hoping the deep will run over them, leaving you with a decent profit and then going back to the previous price.
Costs and Risks of Margin Trading
As mentioned above, the cost of the margin position includes paying the ongoing interest for the borrowed coins, and fees for opening a position with the exchange. As the chance to earn more increases, so does the risk of losing more.
The maximum we can lose is the amount we invested in opening the position. This level is called the liquidation price. The liquidation price is the price where the exchange automatically closes our position, so we don’t lose any of the money we were loaned and only lose our own money.
Example: if we are talking about standard trading, leverage 1:1, the liquidation price is when the position reaches a value of zero. As the leverage increases, the liquidation value will get closer to our buying price. For example, If the Bitcoin value is $1,000, and we bought one Bitcoin (long) with leverage of 2:1. The cost of our position is $1,000. Besides, we have also borrowed a further $1,000.
The liquidation price of our position will be a little over 500 USD – because, at that level, we lose exactly our initial $1,000, plus interest and fees. Margin trading can also be against the market, so we can also have a short position with leverage.
High leverage risk: The higher the leverage, the closer the liquidation price is. The rule here is dividing 100 by the leverage level will grant you the percentage until you reach the liquidation price. Example: a positive with 1:25 leverage needs only a 4% move (100 divided by 25) to get liquidated. 4% can be achieved quickly in the volatile crypto markets.
It is now possible to trade margin on most exchanges. The advantages of leveraged trading are very clear, and another significant benefit comes from the security aspect. Crypto traders should strive to minimize the number of coins they hold on exchanges. Exchanges are considered hot targets for hackers, and in recent years there have been several hackings of exchanges, including hacks of the major exchanges too.
Trading on margin allows us to open leveraged positions with no need to provide the Bitcoin required; that way, we can hold fewer coins on the exchange account.
BitMEX – Established in 2020, BitMEX has gained its reputation as the leading exchange in the field of margin trading of Bitcoin by means of the trading volume. All the recent years’ Bitcoin moves had started on BitMEX. The exchange offers up to 100X leverage for long and short positions. With our link, you can receive a 10% discount for the first six months on the trading fees upon registration. Click here for the BitMEX trading video tutorial.
Further Reading – Margin Trading
Additional tips for trading Bitcoin and Altcoins – can be read here and here.
Want to read more useful tips? Follow our 12 must-read crypto margin trading tips.
How to Trade Cryptocurrency – For Beginners
A Beginners Guide Trading Cryptocurrency
Everything You Need to Know to Start Trading Cryptocurrencies Like Bitcoin and Ethereum
We explain how to trade cryptocurrency for beginners. To start trading cryptocurrency you need to choose a cryptocurrency wallet and an exchange to trade on.
From there it is as simple as getting verified with the exchange and funding your account (a process that can take a few days).
Once you are verified and have your account funded, the only thing left to do is to buy or sell crypto using limit, stop, and/or market orders.
In other words, if you want to trade cryptocurrency you need:
A cryptocurrency wallet (or two). For example Atomic Wallet, Trezor, or even the wallets offered on exchanges.
A cryptocurrency exchange (or two) to trade on. For example Coinbase, Bittrex, or Binance.
The next step is trading. When trading, you can:
Trade dollars to crypto (for example US dollars to Bitcoin or Ripple to US dollars).
Trade crypto to crypto (for example Bitcoin to Ethereum or Ethereum to Litecoin).
Coinbase, Cash App, and Other Solutions For Trading Cryptocurrency
One solution for all the above is Coinbase/Coinbase Pro.
Coinbase is a good choice because it acts as a wallet, exchange, and place to trade dollars for crypto and crypto to crypto. In other words, Coinbase is an all-in-one solution for everything noted above!
What Coinbase looks like.
With that said, Coinbase has a limited amount of “altcoins” (Bitcoin alternatives like Ethereum, Ripple, and Litecoin), and thus many traders also use popular crypto-to-crypto focused exchanges like Binance, Bittrex, and Kraken to access a wider array of crypto assets.
To get access to a wider range of coins, a trader or investor may use more than one exchange, doing something like buying Bitcoin on Coinbase using USD, and then sending their Bitcoin to Binance to trade Bitcoin for other cryptos (converting back to Bitcoin to sell on Coinbase when they are done).
With the above covered, not every trader / investor is going to want to or be able to deal with cryptocurrencies directly, luckily there are some indirect options as well. These include:
An app like Square’s Cash App or Robinhood (TIP: For those who don’t want to go the Coinbase route, Square’s Cash App is a particularly good starting point for newcomers who just want to buy/sell Bitcoin and otherwise keep things simple).
The GBTC trust, ETHE trust, ETCG trust as sold on the stock market (these are solid choices, but watch out for the “premium“).
A cryptocurrency IRA (these have drawbacks like fees, but they can be valid choices for long term investing).
Now with that said, some traders are going to be familiar with more technical types of trading and/or won’t be US based. These traders may want to try using leverage, for example on Coinbase Pro or Kraken, or may even consider crypto “derivatives” like futures and options offered by platforms like Bakkt, CME, FTX, or BitMEX. Leverage and derivatives aren’t beginner friendly, but for for seasoned traders new to crypto, they can make sense.
Each option has its pros and cons, but notably, only an exchange-broker-wallet hybrid like Coinbase/Coinbase Pro allows one to trade, invest, store, send, and receive coins directly using a single platform.
Given the above, this page will focus on getting you started with Coinbase due to its ease of use for beginners and due to its usefulness for advanced users too.
Our Suggestion: Use Cash App if you want to keep things simple and just buy Bitcoin, use Coinbase if you are ready for real cryptocurrency investing and trading, and then when you have mastered Coinbase move onto Coinbase Pro, Binance, and Bittrex to get a wider selection of crypto assets. If at some point you feel like you have mastered trading and risk management strategies, then you may want to consider leverage and derivatives trading. Trying to do this out of order can lead to real issues, so we strongly suggest learning to walk before you run here. Lastly, at any point in this process, we suggest getting a hardware wallet like Trezor and storing your long term holdings in your own wallet. Also, once you learn the ropes, educating yourself on other aspects of crypto like mining and how blockchain and smart contracts work is a good idea too!
Buying and selling Bitcoin using Square’s Cash App.
What You Should Know Before You Start Trading Cryptocurrency
If all you know about crypto trading is the above, you know enough to get started trading cryptocurrency.
However, there are a few things to know about trading cryptocurrency beyond what was noted above that can help you go into crypto trading prepared:
Trading on an exchange means you need to understand order types. Unless you are using a broker service like Cash App or Coinbase.com, you are going to have to understand the difference between a limit order and market order. And, on some exchanges, you’ll also need to understand how stops work. If you are trading on an exchange, also make sure you brush up on the concept of slippage. Crypto markets can lack “liquidity,” so please be very careful placing big market orders! Learn more about order types.
Securing your accounts is really important. In crypto if your account gets hacked, or if you lose access to your wallet, you lose everything. There is no way to recover in many situations, so security is super important. A strong password, 2FA, and other good practices are a must. For exchange protection, I suggest 2fa on a Coinbase account with whitelisting turned on in Coinbase Pro (this would force a hacker to not only get past your 2fa, but to spend time turning your whitelisting off to steal your coins). For wallet protection, you MUST write copy your seed / pin / etc onto a device kept offline, best to have a backup and to have them both encrypted (but make sure not to lose that password either). Lastly, secure password programs like Last Pass help. Learn more about securing your crypto accounts.
The cryptocurrency market is insanely volatile. You can make a fortune in a moment and lose it in the next whether you trade Bitcoin, another coin, or even a stock like the GBTC Bitcoin Trust. Consider mitigating risks, hedging, learning some TA, and not “going long” with all your investable funds. TIP: If you trade only the top coins by market cap (that is coins like Bitcoin and Ethereum), or GBTC, then the chances of losing everything overnight are slim (not impossible, but slim). Other cryptocurrencies are riskier (but can offer quick gains on a good day). In general, coins with lower market caps and volumes tend to offer a greater risk / reward.
Trading on margin doesn’t make sense for newcomers. Newcomers likely want to stick to major coins with good liquidity and avoid margin trading. No better way to blow up your account than to leverage altcoins, but some who dive deep into crypto culture will come along the temptation quickly. Common sense says don’t do this out of the gate, so here is your warning!
Derivatives have their own rule-sets. You can’t just HODL an options contract because you’ve mistimed the market, and holding a perpetual long or short contract can cost money in fees. The chance to maximize gains can be attractive, but the risk you take and skill you need make derivatives ill suited for beginners.
Cryptocurrency trading is a taxable event. If you don’t understand the tax implications of trading cryptocurrency tread very carefully. There are some nasty traps you could fall into when trading coins. For one, they are not necessarily considered “like-kind assets.” If that is confusing, then consider sticking with trading USD for coins in Coinbase until you grasp the concept. Learn about cryptocurrency and taxes.
A cryptocurrency exchange is not part of the regular stock exchange. Below we will suggest using an exchange/broker Coinbase, but you can also use the related Coinbase Pro (the pro version of Coinbase with lower fees) once you sign up for a Coinbase account. Neither of these is the same as Wall Street and its exchanges (same general mechanics, different specifics, and different entities).
In other words, if you understand order types, security, and what you are trading, you are ready to start trading.
NOTE: For more tips and tricks, check out our crypto investing tips and tricks page.
TIP: There are a few sides to cryptocurrency. 1. you can trade and invest in it, 2. you can use it for transactions (anywhere a coin type is accepted), 3. you can break out a graphics processing unit and some software and mine coins (see how to mine coins), 4. you can develop for it, etc. All those and more are valid and interesting ways to interact with the crypto space, but with that in mind, this page is focused on “trading” cryptocurrency (and therefore also investing in it). With that said, even if you want to do the other things with cryptocurrencies, you still need to be set up for trading (as for example most miners will sell at least some of the coins they mine and developers will need to fund their operations).
On cryptocurrency mining: As noted, one way to invest in cryptocurrency is via cryptocurrency mining. That is a valid way to start investing if say you love computer gaming and need a new rig and want to invest in small amounts of cryptocurrency while maybe making back some of the cost of the rig (and maybe even breaking even) but that is an entirely different subject. The average investor will want to trade USD for cryptocurrency on an exchange and avoid the complexities and investments of mining. In all cases, unless you already have a good rig with a great graphics card, you’ll need to put down USD upfront anyway.
How to Pick the Right Exchange
Above we laid out some choices for where to trade, below we will dive a little deeper into those choices to help you pick the right crypto exchange for you.
The first thing to understand is that you don’t have to jump right in to traditional crypto exchange trading to get exposure to crypto. In fact:
A beginner might prefer to use the Square Cash App or Robinhood. Square’s Cash App is an excellent choice for newcomers. Cash App lets you buy/sell/send/receive/store Bitcoin just like Coinbase. Cash App doesn’t offer all the other crypto choices Coinbase does, but it does provide a simple way to get exposure to Bitcoin without having to fully learn too much about crypto wallets and exchanges. Meanwhile, Robinhood is another solution that isn’t a full fledged exchange. While they aren’t offered in all states and unlike Cash App don’t allow deposits and withdrawals, they do offer a larger selection of coins than Cash App and plan to allow transfers in the future.
A beginner might prefer to trade cryptocurrency stocks on the stock market. For example, GBTC is a trust that owns Bitcoin and sells shares of it. Trading GBTC avoids you having to trade cryptocurrency directly, but still allows you exposure to Bitcoin. Beyond GBTC (and the Ethereum ETHE and Ethereum Classic version ETCG), your options are very limited for crypto stocks. Be aware that GBTC often trades at a premium (meaning bitcoins are cheaper than buying shares of the GBTC trust), which isn’t ideal. Also, cryptocurrency trading is a 24-hour market, where the traditional stock market is not. Learn more about the GBTC Bitcoin Trust and the related pros and cons before you invest.
GBTC’s price to NAV can get a little absurd at times.
For those who want the real cryptocurrency experience, the questions become 1. do you want to deal with limit orders and real exchange trading, and 2. do you want a wide selection of coins?
I think the simplest and best place to buy, sell, and store coins in the US is Coinbase (and our tutorial below will help you get set up with that), but you can only buy, sell, and store Bitcoin, Ethereum, Litecoin, Bitcoin Cash, and a small (but growing) selection of other coins on Coinbase. Coinbase will let you try out simple broker based trading and real exchange based trading, and will give you exposure to enough coins to get you started.
However, if you are serious about trading cryptocurrency, and want access to all the coins crypto has to offer, you’ll want to also sign up for other platform that allow you to buy/sell crypto like Coinbase Wallet, Bittrex, Binance, or Kraken (and may want to find other solutions for wallets to store your coins in like TREZOR).
See our list of exchanges for beginners for a more complete list of options.
TIP: Even if you are going to get fancy with wallets and exchanges, Coinbase is a good starting point because it works as a simple on-ramp / off-ramp for fiat (i.e. you can easily trade dollars for cryptos on Coinbase, and this is not true of most exchanges).
Why Pick Coinbase As Your First Exchange?
As you can tell already, even though we have presented a range of choices, this guide is suggesting that Coinbase is a good starting place. That is because in general when picking a first exchange the following is true:
A beginner should start by choosing a company with a good reputation that offers an exchange and wallet (to help keep the process simple).
A beginner should also start by trading prominent coins. Currently, in 2020, we are referring to coins like Bitcoin (BTC) and Ethereum (ETH). In the future, this could change.
Since the above is the case, a good start for anyone wishing to trade cryptocurrency is starting with Coinbase.com (the most popular cryptocurrency website in the United States, and a service that offers a single platform for a Bitcoin wallet, Ethereum wallet, Litecoin wallet, Bitcoin Cash wallet, etc and a currency exchange).
After you master Coinbase, then you are ready for say Coinbase Pro and other exchanges like Bittrex, Binance, or Kraken. After that, you might want to check out derivatives trading if your region allows it and you really have some trading chops. For now though, let’s learn to walk before we run and get Coinbase set up. The next section will walk you through setting up Coinbase.
TIP: A good first foray into cryptocurrency investing is the obvious, buying a major cryptocurrency like Bitcoin. After that, you’ll probably want to trade USD for crypto on an exchange like Coinbase Pro. Once you have done that, you could try trading BTC and ETH for other cryptocurrencies. Trading “crypto pairs” can be rewarding, but it is more complex and often more risky than just buying a single cryptocurrency as an investment. In other words, start by trading dollars for major coins like BTC and ETH on an exchange like Coinbase, and then when you are ready try trading BTC and ETH for other coins on an exchange like Binance or Coinbase Pro.
An example of trading on Coinbase. Fees are lowering on proper exchanges than they are with brokers like Cash App and Coinbase Consumer.
TIP: A cryptocurrency wallet is a place where you store encrypted passwords that represent the ownership of coins (roughly the equivalent to storing money in a bank account). A cryptocurrency exchange is like a stock exchange or like a currency exchange in a foreign airport (a place people can trade cryptocurrency for other cryptocurrencies and fiat currencies like the US dollar). Just like if you want to trade stocks you need a bank account and access to the stock exchange, it is the same deal with cryptocurrency. To trade cryptocurrency, you need a wallet and a cryptocurrency exchange.
How to Get Started Trading Cryptocurrency With Coinbase.com
Below we will walk you through signing up for Coinbase. This process is very similar to the sign up process for any exchange. The process requires you to trust sensitive information to a third party, and this is yet another reason why we are going with one of the more trusted exchange out there, Coinbase.
First, to sign up for coinbase.com.
Sign up for Coinbase.com to create a digital currency wallet where you can securely store digital currency. NOTE: By using this link we both earn $10 in BTC when you spend at least $100 https://www.coinbase.com/join/59b44f017b95ca012a60ef06.
Connect your bank account, debit card, and/or credit card so that you can exchange digital currency into and out of your local currency (you’ll probably also want to add optional info and upload your ID to expand your purchasing limit).
Trade Cryptocurrency to Cryptocurrency (trading one crypto to another). You can use the convert button on Coinbase or use Coinbase Pro for this.
NOTE: If you want to use Coinbase Pro, fund your account with dollars or USDC and then move your funds over to Coinbase Pro to trade.
TIP: Coinbase accepts some non-US currencies as payment, but options may be limited. See Payment Methods on Coinbase.com for more information.
TIP: Coinbase is constantly expanding their offerings, check out a list of what cryptos Coinbase plans to offer.
Important notes for buying, selling, storing, and sending cryptocurrency using Coinbase:
FIRST AND FOREMOST: USE TWO FACTOR AUTHENTICATION AND A STRONG PASSWORD. MAKE SURE TO ENABLE ALL SECURITY FEATURES IN COINBASE. Coinbase/Coinbase Pro is insured, but not against your account getting hacked, just against something happening on their side.
To increase your buying / selling limits, input all forms of payment possible. Please note, only some banks are supported. Yours might not be. Please note that fees are lower with a bank account, and fees are rather high without one. Given that, you should use your bank account to purchase cryptocurrency directly via Coinbase over other payment methods whenever possible.
When you sign in with your bank account, you’ll need to input your bank account login. That may feel shady, but is the process (read about it at Coinbase).
If you use your bank account, you have to wait 3-5 days for your bank to approve the pairing (so you can’t trade for about a week after you sign up).
There are limits to how much you can buy or sell in a week. Adding a photo ID and other payment methods will increase your limits. Otherwise your limits increase (quickly) over time as you trade.
Coinbase now has instant purchase when you buy with your bank account. CAVEAT: Not all Coinbase accounts have instant purchase. Many do at this point, but not all do.
There are fees involved with buying from Coinbase and some types of trading on Coinbase Pro (which can in cases get lower as you buy / trade more). Other exchanges have better rates than Coinbase (for example Coinbase Pro itself has better rates). However, rarely do exchanges have a better fee schedule than Coinbase Pro. In other words, when using Coinbase specifically, you’ll pay a little bit more than market price (or sell for a bit less than market price) and pay a small fee when trading on Coinbase (this is a trade-off for ease of use). NOTES: To be clear, there are essentially two sets of fees when you buy with Coinbase. One is them charging you more per coin than on Coinbase Pro or other exchanges; the other is an actual fee (currently paid in crypto, not USD, so if you buy 1 Ether, you get a little less than 1 Ether but pay the market price). That is the price you pay for them doing all the work and taking the risk of the price changing quickly when you buy. Not a reason not to use Coinbase and only use Coinbase Pro every time, but it is something to keep in the back of your mind if you start making lots of buys.
Today you can use USDC (a stable coin) in place of the dollar on Coinbase in some instances. Although this is mostly something to keep in mind for trading on Coinbase Pro, it is important to note here given that you can buy USDC without a fee directly on Coinbase (and swap between dollars and USDC for free at any time). On some trading pairs you have to use USDC, on others you can’t. Try buying USDC with your bank account and then swapping between USDC and USD as needed. The benefit of buying USDC and USD on Coinbase is that it has no fees (as opposed to buying cryptos directly through Coinbase.Com, which can result in fees and premiums).
To trade coins, you need to go into settings and make sure your wallets are set up (each coin has a wallet; wallets can be found under “accounts”).
The benefit of a USD wallet on Coinbase is that you can put money in that and then, once the deposit clears, use it to buy coins immediately moving forward. If you try to buy directly with your bank account, the transaction can take about a week. Given this it is smart to fund your USD wallet or buy USDC and then use that moving forward to buy crypto. You’ll still need to wait for the deposit to clear, but once it is cleared with your bank you can use the funds. You can buy coins on Coinbase.com via your USD wallet (just toggle to USD wallet instead of bank account when making a purchase), although you’ll still pay the broker fee, and you can buy coins on Coinbase Pro using USD or USDC for low or no fees (remember, no fees for limit orders, low fees for market orders).
You don’t have to buy a whole coin. You can buy fractions of coins. Whole Bitcoins can be expensive these days, so consider buying fractions of a coin to start if you don’t have a big bankroll. It has historically been a mistake to buy only other cryptos because BTC costs more. You need to think of which one will increase in and retain value, buying all three in equal $ amounts (and ignoring how many of each coin that amounts too) is one way to avoid making the wrong choice based on price tag per coin.
When you buy a coin, take a breath and review the information. An extra decimal place can mean big money considering a single Bitcoin can trade for over $4,000.
Sending cryptocurrency to other users is easy with Coinbase. You can send to the email address of another Coinbase user, or you can send to an outside address. Just make sure to review the information carefully. You can’t reverse a transaction if you send to the wrong crypto address!
Download the app. This lets you trade cryptocurrency from your phone. The market is volatile; transactions are slow. When it is time to buy or sell, you need to do it ASAP.
Set alerts. Alerts can help you decide when to buy or sell.
There is a feature that lets you buy incrementally over time. Averaging in a position on a weekly basis is a solid conservative move that Coinbase will automate for you.
Cryptocurrency is volatile! There is always the chance that the market will crash, or that you will face some other catastrophe. Cryptocurrency isn’t a centrally controlled and regulated fiat currency. If you lose a coin or someone cheats you, there is nothing you can do about it (which is why you want to have 2-factor authentication set-up).
In other words, trading cryptocurrency is simple to start, but there are some essential aspects to understand before you start trading with a wallet-exchange like Coinbase.
And remember, there are countless other options for setting up wallets and trading currency. Most will, however, pair with a Coinbase account (making it a logical place to start).
NOTE: Once you have Coinbase down, try moving onto Coinbase Pro. It’s, in overly simple terms, like a better version of Coinbase with lower fees. Coinbase operates both platforms, and both use the same logins. Coinbase Pro is the preferred exchange of many Bitcoin traders in the U.S. It caters to both pros and novices. After you master that, then consider exchanges like Bittrex and Binance.
Bottomline: Although things can be as simple as grab Coinbase, Binance, and a TREZOR, or just click some buttons on the Cash App, the reality is beginners have a range of choices for how they want to approach crypto! Cool thing is, you can try them all.
“How to Trade Cryptocurrency – For Beginners” contains information about the following Cryptocurrencies:
How to trade cryptocurrency – a beginner’s guide
Learn everything you need to know before you start trading Bitcoin, Ethereum or any other cryptocurrency.
Last updated: 14 March 2020
The value of cryptocurrencies is increasing. In 2020 Bitcoin (BTC) grew from around £600/BTC to over £8,000/BTC. With such growth comes an increase in market trading, which in turn helps the currency keep growing.
It can be a good choice for cryptocurrency beginners because you don’t need your own cryptocurrency wallet, and you can get a feel for the market movements without needing to buy it outright.
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Where to trade cryptocurrency in the UK
The value of investments can fall as well as rise, and you may get back less than you invested. Past performance is no guarantee of future results. Your capital is at risk.
Spread bets and CFDs are leveraged products and can result in losses that exceed deposits. The value of shares, ETFs and ETCs bought through a share dealing account, a stocks and shares ISA or a SIPP can fall as well as rise, which could mean getting back less than you originally put in. Please ensure you fully understand the risks and take care to manage your exposure.
All of the following platforms are available in the UK and offer cryptocurrency trading.
How to pick a trading platform
Some of the main differences you’ll find include:
The currencies available: Bitcoin to USD is widely available, but other fiat and cryptocurrencies might not be available at all platforms.
Leverage available: Leverage lets you trade beyond your initial deposit and multiply your gains, suiting those who prefer higher risks and higher rewards. You can often find leverage up to 20:1 with cryptocurrency, depending on your chosen platform and currency pair.
Trading features: Hedging, stop loss features and other options can give you more control over your trading. Experienced traders might be able to benefit from these, while first-timers might prefer to keep it simple.
Minimum investment: What’s the minimum (and maximum) amount you can invest? Does it work for you?
A word on risk
Market trading of any asset is risky and cryptocurrencies are very volatile. There is no guarantee of a return of investment. As always you should never trade with capital that you aren’t prepared to risk losing.
How cryptocurrency trading works
Market trading might sound like something reserved for the financial elite, but the growth of cryptocurrency is accompanied by the growth of online currency exchanges and trading platforms where anyone can take part in market speculation. You just need to know how it works.
What is forex market trading?
Foreign exchange (forex) market trading is the buying and selling of currencies between traders. In its simplest form, you’re betting on the changing price difference between two different currencies.
You open an account and deposit funds into it. These funds are then used to place buy and sell orders against another currency. You make profits from selling, or closing orders at a higher price than you bought.
How do you make a profit?
To start trading, you deposit funds into your account. When you bet correctly the funds in your account increase. When you bet incorrectly, the funds in your account decrease.
With leverage, you can magnify your profits and losses.
For example, say you placed a US$1,000 trade on Bitcoin increasing in price, without leverage. If its price increased by 10%, compared to the US dollar, during the trade period your profits would be US$100, minus any trading fees.
But if you traded with 10:1 leverage, your profits would be 10 times that, minus the trading fees.
As you can see, the sharp price movements of cryptocurrencies, combined with leverage, can quickly produce substantial returns.
However it goes both ways. If the price starts dropping, leverage might chew through your deposited funds quickly.
Trading cryptocurrencies works exactly the same, but instead of selling and buying fiat currencies, such as euros or US dollars, traders buy and sell cryptocurrencies, such as Bitcoin, Ethereum or Litecoin.
For example, you might bet on the changing price difference between the US dollar and Bitcoin. Or you might bet on the changing values between two different cryptocurrencies, such as by trading a BTC:ETH pair.
If you think Bitcoin will increase in value you might “go long” on it. This means betting that it will increase in value relative to the US dollar.
If you think Bitcoin will decrease in value you might “short” it instead. This means betting that it will decrease in value relative to the US dollar.
You’re not actually buying the cryptocurrency. Instead, you’re just placing an order on the market.
What’s the difference between XBT vs BTC?
The fight over whether Bitcoin’s currency code should be BTC or XBT is ongoing (as of November 2020). When Bitcoin was first introduced, BTC became both the abbreviation for Bitcoin and its currency code. As Bitcoin gained momentum and recognition, a large portion of the community asked for a better currency code that adheres to the International Standards Organisation’s rules on cryptocurrency codes, mainly that currencies not associated with a specific country should start with the letter X, hence XBT.
Just like forex market trading, cryptocurrency trading works by exchanging one currency into another and back. You will usually exchange a fiat currency into a cryptocurrency and then, at a later date, back into a fiat currency, although there are traders and exchanges that allow cryptocurrency-to-cryptocurrency trading.
For example, let’s take a look at the BTC to USD chart for 2020:
Bitcoin to USD price chart, November 2020 – November 2020 Yahoo Finance
We can see here, that as 2020 progressed, the value of Bitcoin in comparison with the dollar, grew from just under US$1,000/BTC on 1 January 2020 to over US$10,800/BTC in the last week of November 2020.
Two types of traders
There are two types of trading available to traders interested in market trading cryptocurrencies:
Long-term traders buy and hold cryptocurrencies over a long period. They may hold a cryptocurrency for weeks, months or even years. Studying price trends over a long period allows long-term traders to make informed decisions and avoid suffering from short-term dips in value.
If you believe the value of a cryptocurrency will grow steadily over a long period and don’t want the stress that comes from short-term value dips, then this method might be your best choice.
Short-term trading (or intraday trading)
Short-term trading eschews the stability of long-term trading for the possibility of taking advantage of short-term price swings and involves buying and selling cryptocurrencies over the span of a day or a few hours.
If you’d rather take advantage of the characteristic volatility of cryptocurrencies by getting in and out of a trade quickly, then this method might be for you.
The advantages of trading cryptocurrencies
Trading cryptocurrencies, while similar to trading fiat currencies on forex, comes with its own set of advantages.
Cheap fees and fast exchanges. For each trade, the exchange platform you’re using will take a small percentage as commission for the service they’re providing. This is inevitable. Where cryptocurrency trades differ from their fiat currency equivalent is in the size of this fee. Because the fees for transferring cryptocurrencies (typically via wallet payments) are cheaper than credit card and bank transfer fees, market-trading fees are cheaper than forex-trading fees.
Extreme volatility. Traders make profits when the price of the currency takes large strides upwards, and cryptocurrencies often experience large price movements. While this increases the risk (large price movements happen downwards as well), you can often make a lot of profit with a relatively small bankroll.
Open all week.You can only trade stocks and commodities during business hours, and you can often only trade forex during weekdays. Cryptocurrencies, on the other hand, can be traded 24/7, anytime and anywhere, depending on the exchange.
Things to be careful of
If you’re not careful when it comes to cryptocurrency trading, you could find yourself gambling more than you’re trading, and eventually you might lose all your money. Trading is not a game, and just as there is real money to be made, there is real money to be lost. Doing your research and keeping the following concepts in mind when trading could help you avoid the pitfalls of cryptocurrency trading.
The number one thing you’ll need to keep in mind when it comes to cryptocurrency trading is that the price is extremely volatile. Where certain trade techniques used in forex might take months to come to fruition, in cryptocurrency trading, it could only take hours or days. While this is beneficial when it comes to making a profit, it could also be your downfall if the price moves the other way.
In September 2020, Litecoin’s value fell more than 50% in two weeks. The recovery to its previous value took more than two months. Cryptocurrencies not only take large steps in value both up and down, but they also do so in very short spans of time.
Litecoin to USD price chart, August 2020 – November 2020 CoinMarketCap
Compare this movement to the chart of euros to US dollars for the same time period.
EUR to USD price chart, August 2020 – November 2020 Yahoo Finance
In August 2020, US$1 was worth EUR€0.8457. In November 2020, US$1 is worth EUR€0.8375. That’s a difference of only EUR€0.0082 per US$1.
Patterns sometimes lie
Many market-trading books and guides cover certain chart-reading techniques and patterns used to predict the market by professionals. While the market does sometimes follow patterns, this is never a guaranteed outcome, and unless you limit your exposure, you could end up losing a lot of money over a pattern that does not exist.
Limit your exposure
Limiting your exposure comes down to two specific concepts:
Never invest more money than you are willing to lose. You should consider any money you put into a trade as lost. If you’re uncomfortable with this notion, then you’re trading more money than you should be. Finding the point where you’re comfortable with this concept is key to helping you trade stress-free.
Consider setting up “take profit” and “stop loss” orders. These limits are offered by many professional trading platform and can automatically liquidate and “cash out” your position at predefined prices.
Stay away from leverage
Leverage is money that a broker loans you. It’s wise to stay away from leverage until you’ve learned everything you can learn about making trades with your own money. While leverage can help you make greater profits with short cryptocurrency movements, it can also amplify your losses when the trade takes a wrong turn.
Always remember, leverage amplifies your winnings and your losses equally. As a beginner, the risks presented when using leverage are typically not worth the possibility of amplified profits.
You decide to trade US$2,000 to BTC. Additionally, you leverage another US$10,000 from your broker. Now you can buy 1.6 BTC at US$7,500/BTC. Later you sell at US$8,500/BTC, return the US$10,000 and you are left with US$3,600, a profit of US$1,600 on your initial US$2,000.
Unfortunately, this works the other way around. If the price of Bitcoin had fallen to US$6,500/BTC instead, you would have lost US$1,600.
Always remember, leverage amplifies your winnings and your losses equally. As a beginner, the risks presented when using leverage are just not worth the possibility of amplified profits.
Know when to cash out
What market trading really comes down to is knowing when to close a trade. This is the crux of the operation. Getting into a trade is easy, knowing when to get out is hard, and that is where you should focus most of your learning. This again involves two different aspects:
Closing a trade in profit. It is important to take your winnings out of a trade. Cryptocurrencies can move down more quickly than they move up and you don’t want to be late cashing out of a trade. You also don’t want to be too early and miss out on extra profits. There are a lot of techniques to help you make this decision that are out of scope of this beginner’s guide.
Cutting your losses. Similarly, you want to be ready to cut your losses if a trade goes too wrong while also not getting out too early in case the cryptocurrency recovers. Again, there are countless guides and books to help you make this decision.
How to get started trading cryptocurrency
Some trading platforms will suit your needs much better than others. It’s worth comparing them in detail and trying demos where available to find the one you like.
The value of investments can fall as well as rise, and you may get back less than you invested. Past performance is no guarantee of future results. Your capital is at risk.
Spread bets and CFDs are leveraged products and can result in losses that exceed deposits. The value of shares, ETFs and ETCs bought through a share dealing account, a stocks and shares ISA or a SIPP can fall as well as rise, which could mean getting back less than you originally put in. Please ensure you fully understand the risks and take care to manage your exposure.
Step 1. Learn the platform
Cryptocurrency brokers usually offer their own trading platform, and each broker’s system will be slightly different from one another. You will need to put in the time to learn how the platform works, where each feature is and how to utilise it.
When you first access a broker’s trading platform, you might feel overwhelmed. This is normal. Spend some time with it and continue doing your research. You will get comfortable with it in no time.
Step 2. Is it the right time?
The old adage of “buy low, sell high” holds for cryptocurrencies just as it holds for any other sort of investment or trading. Cryptocurrency markets move up and down, and large movements up are often followed by sudden dips.
Ethereum to USD price chart, May 2020 – November 2020 CoinMarketCap
Step 4. Get in there
The best way to learn how to trade is to actually trade. There is no secret. Once you’ve learned all the theory, you’ll need to get your feet wet. Buy some cryptocurrency, set your limits and get started.
Just remember that it’s gambling. Go in expecting to lose your money and you’ll never be disappointed.
What affects the price of a cryptocurrency?
Cryptocurrencies are volatile by nature. They are not as stable as currencies that have had centuries to develop. Bitcoin is the oldest coin on the market, and it has only been around since 2009. Nevertheless, there are a number of things that can affect cryptocurrencies:
Regulation. If a government makes a statement or pushes for a particular regulation that affects cryptocurrencies, you can bet that the price will react to it (sometimes positively, often negatively). When China banned ICOs, the price of Ethereum fell by 41% in 15 days (from US$386.83/ETH to US$228.06).
Media influence. Just like government regulation, exposure in the media greatly affects a cryptocurrency’s price. Whenever a public figure makes a statement regarding cryptocurrencies or a major retailer starts accepting cryptocurrency as a form of payment, you will see the market respond.
Changes to the technology. When a cryptocurrency’s core technology is affected (either via an update or the finding of a flaw), the cryptocurrency’s price is also affected.
Trading cryptocurrencies works almost exactly the same as trading fiat currencies, and it will benefit you greatly to learn the theory behind trading currencies. While profits are never guaranteed when trading, you can take steps to protect yourself from heavy losses and to improve your understanding of how markets move.
There’s more to know than can be crammed into this guide, but the only real way to learn is by doing. This generally means picking a platform, setting aside some money that you don’t mind losing, and getting to learning.
Trading Bitcoin, Ethereum or Litecoin explained
What is Cryptocurrency Trading?
The smart alternative of forex trading
Cryptocurrency Trading Overview
Cryptocurrency Trading is the Forex (Foreign Exchange) of cryptocurrencies. This means that you are able to trade different cryptocurrencies like Bitcoin, Ether, Litecoin for USD. Most Altcoins (cryptos that are not Bitcoin) are paired with Bitcoin. The bigger ones are also paired with fiat currencies.
Cryptocurrency Trading is an alternative way to get involved in the Crypto-World! It doesn’t require mining hardware nor investing in bitcoin hyips or bitcoin cloud mining (which always has risk involved in their integrity).
Why trade Bitcoin and not other Forex?
Easy to enter
To start trading bitcoin and earning money, you really need less than an hour – for the how to steps, just scroll down. On the other hand, if you want to start trading Forex, opening an takes several weeks. They usually need to follow security measures and send you your the sign-up forms and access code per mail. Not to mention that it takes days until the transferred money from your bank account is arrives at your Forex Broker.
It should be also mentioned that crypto-trading is easy to leave. Just transfer your Bitcoins out of the exchange into your wallet and you are done. We don’t even want to start talking about how nerve-racking it is to quit your broker.
One big difference to Forex are the big spreads. A spread is the difference betweenask and bid prices. The ask price is the highest price that someone wants for a given cryptocurrency, this is essentially the buying price. The bid price is the lowest price someone is willing to give you for a given cryptocurrency, this is basically the selling price.
The spread of BTC/USD is intuitively bigger than the one of USD/EUR, since the market is less liquid. There is no rule of thumb, but you should expect that the spread is at least 10 times bigger in the crypto world!
A bigger spread opens up the possibility for the trading strategy called cryptocurrency scalping. Often utilized by market makers.
Leverage at Cryptoexchanges
You have the option to use leverage trading on some Forex and Cryptocurrency Exchanges. Leverage Trading is the possibility to trade an amount, which you don’t have at your disposal. Normally Cryptocurrency Exchanges offer a leverage of up to ten to one (10:1). This means, that for each dollar you get 10 dollars of buying or selling power.
In conclusion, this means a higher risk and a possible higher reward.
Margin at Cryptoexchanges
A margin is required to be able to leverage a trade. Margin Trading: You are allowed to use coins from peer-to-peer margin funding providers. This means, that you can borrow buying/selling power, but you need to allocate some funds (=margin) which won’t be accessible until you return the lent coins.
Let us make a 10:1 leverage example. Let the Bitcoin price be $500. Let us assume that you only have 500 USD but you want to buy 10 BTC. This is possible, but you will have to pay an interest for borrowing $5000 after you close your position. For example, the BTC closes at $550. So you have made $500 or a 100% earnings for only a 10% price increase. From this earnings, you will only need to subtract the interest rate (about 2%) and you have your final profit/loss, which is higher if you predicted the course of the trade correctly. Never forget, that if in the same example the Bitcoin price would have fallen to below $450, then the crypto exchange would have liquidated your position and your account value would be zero.
It is also possible to employ margin trading with a vast number of brokers that offer CFD trading on the Bitcoin and other cryptocurrencies. According to InsideBitcoin’s crypto trading guide found here , it is possible to go both long and short as well as access the leverage of 20:1 with such brokers as eToro. Next to this, the platform is available for both EU and US traders and provides a platform full of useful features, the main one being the Copy Trading.
Getting started trading cryptocurrencies like Bitcoin
The first thing you need is a wallet. Only then you are able to buy cryptocurrencies like Bitcoin or Ether and protect them. We have made a guide on how to obtain Bitcoin already, check it out if you don’t already posses one.
The majority of cryptocurrency exchanges have a free a wallet along the ability to trade, but we suggest, that you don’t put all your cryptos in one place. This way you can minimize your risk of an exchange going broke (f.e. MT GOX), being scammed or getting hacked.
Most exchanges offer cryptocurrency trading with the need of Bitcoin (for example Ether for Bitcoin, or Bitcoin for Litecoin), this is why Bitcoin is the first thing you should consider buying. Most exchanges also accept different payment methods like online bank transfers, PayPal or Creditcard.
Security: Don’t forget to activate your two-factor-authentication to be more safe.
Now after you bought yourself some Bitcoin, the time has come to choose your exchange platform. This is where you are able to instantly trade one cryptocurrency into another. Take note of the currency trading pairs – each exchange has a list of their own. There are exchanges, where you are able to only exchange Bitcointo Altcoin, but not Altcoin to any other Altcoin. This hinders the ability to trade fast and flexible. That is why we have made a list of the best crypto-exchanges. On this list you can find the most competitive bitcoin brokers available, offering lowest transaction fees.
After opening an exchange account, you need to transfer an amount of Bitcoin from your wallet to your exchange account. Another option is to deposit fiat currencies (like USD, EUR etc.) – but take into consideration the fact that there are higher fees attached to those transactions.
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