Bitcoin is a digital currency that works without the influence of a central bank or an operator. It utilizes peer-to-peer technology for transactions from one individual to another. The asset was first introduced back in 2009 and has become one of the biggest currencies worldwide.
It is not clear who introduced the instrument. Some take the name of Satoshi Nakamoto as he was the one who presented whitepapers containing ideas about the coin. The cryptocurrency is represented as BTC.
Characteristics of Bitcoin
Like any other financial instrument, Bitcoin carries some unique characteristics that traders should know.
Blockchain and Peer to peer Technology
Blockchain stores the information on all transactions in little blocks and is visible to the general public. As everything is transparent within the blockchain, it is quite impossible to cheat while trading bitcoin. Bitcoin is the pioneer in adapting to peer-to-peer transactions. The use of technology helps execute instant transfers.
Volatility and Liquidity
The volatility and liquidity of the digital asset are one of the highest in contrast with other cryptos. Traders use volatility indexes that measure the price movement for a certain period for trading purposes.
Spreads and Commissions
Some brokers charge the fees through spreads which is the difference between the bid and ask price. Others will induce maker and taker fee models. As the makers are responsible for providing liquidity to the market, they incur fewer costs than takers.
Bitcoin mining is done through GPUs and ASICs, responsible for solving the complex mathematical hashing puzzles. Miners receive bitcoin when they add a verified transaction to the blockchain. The mining business can be profitable if traders use suitable hardware and calculate the electricity costs beforehand.
A Bitcoin wallet is similar to your regular purse. The difference is that it holds your cryptocurrency and keeps it secure through a set of private keys. Keeping the private key safe and secure is important as losing it would mean no access to the wallet. Like a regular wallet, traders are able to send and receive digital assets.
Bitcoin Trading Strategies
There are several strategies that traders can use to make profits from bitcoin trading.l Some are complex, while others are simple and easy to learn. Traders can choose one according to their skill level and their comfortability. Let us discuss a few below:
- Averaging. Grid trading is one of the common methods to trade in the financial markets. In trading bitcoin, you would want to divide your initial capital into several blocks. As the week or month progresses, the trader would want to buy the currency at certain price levels and gaps, let us say $1000. Doing so can help spread out the risk that can cope with the volatility bitcoin presents.
- Technical analysis. Using trend lines, supply/ demand zones, market structure, and price action techniques can provide a profitable drawdown to monthly gain ratio. Traders are seen using indicators such as moving averages, RSI, MACD, etc., to provide confluence on their trades.
- Arbitrage robots. Using various algorithms to trade cryptocurrencies on the auto mode is becoming famous. Traders use arbitrage robots that exploit the difference in price feed amongst multiple brokers to make profits. It is essential to check the terms and conditions of a crypto exchange as they may prohibit this kind of trading.
A Few Benefits of Bitcoin Trading
There are several benefits to trading bitcoin. Some of them are listed below:
- Bitcoin is one of the most volatile and liquid cryptocurrencies on the planet. For traders who love fast action, Bitcoin is the currency to go
- Many forex brokers offer high leverage, low commission, and deposits that allows access to the currency at no cost
- Digital currencies are mostly free from global political influences, interest rates, etc. They are not tied to a bank