How does Bitcoin trading work?
Trading can be defined in a nutshell as the buying and selling of financial assets in the hope of making a profit.
In the particular case of bitcoin, traders invest their capital to speculate on the next move in the price of bitcoin. foresee the new bitcoin quote is essential to receive benefits whether its price increases or decreases.
To trade bitcoins, some traders buy the cryptocurrency directly from an exchange such as Crypto Market, or through the P2P method (where you trade directly with the person selling or buying). They can also start trading derivatives, such as ETFs or CFDs. The most common strategy is to buy BTC at a low price and then sell it when its price increases.
Remember that unlike “hold” investing strategies that focus on long-term profits, trading specializes in quickly buying and selling assets. The idea is to obtain a good percentage of profitability in the short and medium term.
First, the trader analyzes market patterns (technical analysis) and looks for news, events, activities that may interfere with the psychology of investors (fundamental analysis). In this way, he develops a strategy that seeks to hit the next move of the asset. Remember that trades (sell or buy, long or short) can go well or badly; thus, what really characterizes a good trader is his medium and long-term profitability. In other words, its performance will be judged by adding the result of all the operations carried out during a defined period of time (week, month, three months…), and not by judging on one or two operations taken.
When we think of trading, we automatically think of foreign exchange or “forex”, mistakenly skipping the crypto market. While it is true that cryptocurrency trading is similar to forex, these two have some differences. The international currency market “Forex” is nothing more than the conversion of one national currency into another, taking these differences as profit. In other words, exchanging dollars for euros or euros for yen is considered a foreign exchange transaction.
Bitcoin, like any national currency, is exchangeable for other crypto-currencies or currencies such as the dollar, the euro, the Argentine peso, the sol or the bolivar. Additionally, much like the forex market, the value of bitcoin is largely determined by global supply and demand.
However, something that differentiates the forex market from the crypto market is trading volume. In other words, there is much more liquidity (money in circulation) in the forex market than in the crypto market, moreover the latter is centralized, and the other is not.
Apart from these differences, the concept of bitcoin trading is identical to that of currency pairs: you need to have a well-defined strategy, a clear timetable, a suitable mindset for trading and a good ability to manage risk.