It’s not uncommon to view the price fluctuations of cryptocurrency as completely random, but these fluctuations are more predictable than you might think. Understanding this movement and how to trade Bitcoin is a great way to financially benefit from crypto.
Continue reading for a complete guide on what Bitcoin trading is, how to trade it, and the different methods you can use.
Trading Bitcoin
Trading Bitcoin is a way of speculating its increase or decrease in value and then strategically buying or selling through a crypto exchange, like Vauld. When done successfully, trading Bitcoin is a lucrative opportunity.
But before we discuss how to trade Bitcoin, let’s look at how trading differs from investing and some of the pros and cons of doing so.
Trading Vs. Investing
Investing and trading are sometimes confused with each other, but they are two very distinct ways of engaging in the industry of decentralized finance.
Bitcoin investments typically include:
- A long-term strategy
- Less potential for volatility
- Low trade frequency
On the other hand, Bitcoin trading veers in the opposite direction. With trading, you can expect:
- Short-term strategies
- Higher uncertainty
- High trade frequency
The main difference here is that trading focuses on hourly or daily fluctuations in crypto value to achieve quick and regular profits. Investments, on the other hand, are usually part of a long-term plan with the idea that a diversified portfolio will steadily increase in value.
Why Trade Bitcoin?
Now that we have a better understanding of what Bitcoin trading is, how can you be certain the strategy is right for you?
Trading can be advantageous when done right, but there are several factors to consider. Some of the benefits include:
- Volatility and price fluctuations
- A general increase in value due to finite amounts of Bitcoin
- A decentralized market with no intermediaries
- Increasing liquidity
On the other hand, the disadvantages of trading bitcoin are often directly opposite of its benefits. Volatility, for example, can also mean a decrease in value rather than an increase.
Another consideration is that the decentralization of cryptocurrency means that it is not FDIC-insured like fiat currency. This, paired with security concerns, results in hackers stealing crypto and the original owner not being able to get it back.
But there are several ways to avoid the cons of trading while obtaining the benefits. The first is by selecting a crypto exchange with considerable security measures in place. Let’s look at how to pick the best exchange and additional tips on how to trade bitcoin.
How To Trade Bitcoin
Choose An Exchange
Trading bitcoin requires a platform to execute trades on, and there are countless options available. Finding the one that will work best for you depends on aspects such as security, fees, and available features.
Security
To combat the lack of federal insurance and spike in cyberthreats, choose an exchange with an arsenal of security measures that prevents your funds from being stolen.
Here at Vauld, we know how important it is to keep your assets protected. To do so, we’ve implemented things such as:
- Biometric authentication
- Pin-based authentication
- Multi-factor authentication
- Video verification
- User alerts
Along with these critical features, we have strict protocols set to ensure that your wallets are protected with military-grade security. And all segregated multi-signature cold wallets are secured by BitGo, a digital asset trust and security company.
Plus, all cold wallets are insured for up to $100 million. This means, even in the unfortunate event of a security breach, you can still recover your stolen funds.
Competitive Fees
When talking about fees, it’s important to note where they come from in this type of market.
Makers and takers are the two key players in crypto trading, and both are necessary to support a functioning DeFi market. One creates liquidity, while the other takes it.
Makers place limit orders on electronic lists of buy and sell orders, which creates liquidity and avoids rapid fluctuations of crypto pricing. Takers then instantly buy or sell orders, removing part of the market’s liquidity.
The fees associated with trading are known as maker and taker fees, and if they’re too high they can eat into your profits.
Instead of paying more than necessary, look for an exchange that places these fees between 0-0.1% across the board so you can concentrate on financial gains rather than calculating losses.
Opportunities To Earn
An exchange that offers different ways to earn enables you to increase your profits beyond trading margins. For example, platforms with savings and fixed deposit rates allow you to earn upwards of 13% interest on your assets while you trade.
Once you’ve established the perfect crypto exchange, understanding how to analyze a token’s value will help narrow down your ultimate trading strategy. To do this, let’s take a look at market analysis.
Understand Market Analysis
Blindly assessing the market is a dangerous guessing game. To avoid random throws of the dice and inevitable losses, traders utilize market analysis.
This quantitative and qualitative analysis of the DeFi market explores multiple patterns and other factors that might result in any price movement. Below are the two types of analysis you’ll find helpful while trading.
Fundamental Analysis
Fundamental analysis objectively measures the value of a certain token through publicly available information. Being able to place numbers on something so volatile allows you to minimize risk, evaluate profits, and navigate an otherwise unpredictable market.
Technical Analysis
Technical analysis uses technical indicators based on past value to determine what the worth of a specific token might be at various points in the future. The goal is to understand the daily trends of crypto enough to buy low and sell high.
Successful trades are usually the result of both methods used in tandem.
Now that we’ve defined the two types of analyses for consideration, let’s take a look at the true ability to profit from trades: knowing which method to choose.
Select A Trading Method
There’s a variety of long-and short-term trading styles. With so many variables in DeFi, identifying which one works for you will keep you on track to maximize profits. Here are some of the most popular options.
Day Trading
Day trading involves users entering and exiting a trade on the same day based on intraday price movements. Day traders tend to rely on technical indicators from technical analysis to help navigate ideal exit and entry points.
Scalping
Some forms of day trading, such as scalping, place heavy emphasis on quantity. Traders using this method aim to profit from small movements in price, but the frequency of their trades is usually enough to net a sufficient return.
Instant Swap
A trading strategy not available across every exchange is Instant Swap. Through Vauld, this feature allows you to immediately swap between cryptocurrencies. Instant Swap simplifies the day trading process and is perfect for anyone trading in small amounts.
The fixed rates — which are valid for a limited amount of time — are offered through this option to eliminate slippage that might otherwise cause you to receive a lower price than you requested.
Place An Order
Now that you have a few ideal trading strategies in mind, it’s time to place an actual order. These agreements set your willingness to buy or sell an asset at a predetermined price and are typically either market, stop, or stop-limit orders.
Market Order
The most basic trade order is the market order. These orders are placed for instant trades that are specified in advance, and you typically receive the current price of the particular token.
The goal of a market order is immediacy. If an order is not filled quickly, then it will likely not be completed.
Limit Order
Unlike market orders, limit orders set certain prices on tokens to be filled in a designated period of time. For example, if you’re looking to buy Bitcoin at a specific price, you can put in a limit order that allows you to automatically purchase the token once the price is reached.
The main benefit of this type of order is that it helps mitigate risk. It tends to lose the immediacy of market orders, but it stabilizes financial gains and reduces loss. The downside is that if the requested value is not reached within the timeframe, the order will not be filled.
Stop-Limit Order
The final order type includes two functioning prices. When placing a stop-limit order, the stop price automatically creates a buy or sell order, while the limit price sets the highest price that a trader would purchase an asset for or the lowest price they would sell.
Placing a stop-limit order significantly reduces risks associated with volatility. And a request will only be put into the order book when all of the specified criteria have been met, at which point the order will be publicly visible.
With all of this knowledge under our belt, all that’s left to do is monitor your trades and investments and perfect your wealth-building strategy.
Improve Every Trade With Vauld
Selecting your trading method is a matter of preference, but sticking with it and following the tips provided in this guide will set you up for success as you begin to trade Bitcoin.
At Vauld, making the most of your strategies is simple with our extensive offering of tools. Gain access to competitive rates, interest earned while trading, zero hidden fees, and much more.
Even when the market is volatile, your trading strategy should continue to help build your wealth. Sign up today and trust Vauld to help you make the most of every decision, from your first deposit to your ultimate earnings goal.
