How Do I Invest In and Trade Bitcoin?

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How Do I Invest In and Trade Bitcoin?

Bitcoin's staggering price volatility can excite many investors and traders - especially traders. But because cryptocurrency is one such brand-new asset class, even experienced investors may ask themselves, "How do you trade any currency?"

Is Bitcoin Trading Just Like Foreign Currency Exchange?

Bitcoin is a digital currency, so investors can think in terms of the foreign currency exchange (foreign exchange) market. According to the 2019 edition of the biennial survey of the Bank of International Settlements (BIS), foreign exchange is the largest market, with a daily turnover of around $ 6.6 trillion.

For comparison, the value of global stock trading is estimated at only a few hundred billion dollars per day. Meanwhile, bitcoin daily trading volume is generally less than $ 100 billion per day, although it rose slightly to $ 1 trillion in two days in 2018.

Bitcoin Trading Is More Straightforward Than Forex

But even though bitcoin exchanges talk about "trading pairs" like forex traders, trading bitcoin is not like forex in important ways. Mostly, those methods have to do with the fact that bitcoin was invented in 2008, not like most foreign exchange-traded currencies centuries ago.

As a result, bitcoin trading is simpler and more straightforward than forex. Another important difference is that the IRS treats bitcoin as an asset and not for tax purposes, so the tax consequences of bitcoin trading may differ from trading currencies.

Trading Bitcoin Is More Like Buying Assets

Therefore, today it is better to trade bitcoin (BTC) more simply: it is like choosing to buy an asset, watching its price rise or fall, and subsequently hold or sell it. If considered familiar with forex trading, bitcoin trading is a "spot" like currency.

Apart from these differences, experts like Investopedia recommend trading bitcoins in a regulated cryptocurrency exchange like Gemini Trust instead of a traditional forex exchange, as cryptocurrency exchanges understand the market and security requirements better than foreign exchange markets.

Why Should I Trade Bitcoin?

Bitcoin attracts investors because its volatility provides the ability to profit. Of course, this volatility also easily introduces the possibility of loss. If you want to trade bitcoin, it is important to educate yourself about the bitcoin market - and be sure to assess your own risk tolerance.

How Do I Start Trading Bitcoin?

1. Start at a Licensed Exchange

The first step towards bitcoin trading is to create an account at a cryptocurrency exchange. Gemini, for example, is a cryptocurrency exchange of the New York State Financial Department and a fee regulated by the Custodian.

Note: Our companion article, "How Can I Buy Bitcoin," links it to your bank to learn how to set up an account, transfer funds and buy your first bitcoin.

2. Choose Your Trading Currency

Once you have an investment account in a digital asset exchange and finance it with US dollars, or another accepted currency, it is ready for trading. For example, to get started in Gemini, you can buy USD $ 10 worth or less.

If you have an account in Gemini, and are logged in via the web user interface, you start trading bitcoins from your homepage screen.

Select Bitcoin from the list of various cryptocurrencies available for trading, which is shown on the far left side of the homepage.

Two pull-down menus will appear, allowing you to buy, sell or create an alert; And set the frequency of the command.

3. Begin the Trading Process

To start trading:

Select Buy and one-time or recurring, type the amount you want to buy in the next box, and click "Review Order".

See BTC purchase volume and your fee (full fee programs are available for web (desktop) and mobile users).

Click "Place Order"; Improvement is a "success!" Image with details of your transaction.

In Gemini, apart from bitcoin, you can use USD to buy Ether (ETH), Zcash (ZEC), Litcoin (LTC) and Bitcoin Cash (BCH). Although bitcoin and bitcoin cash share a history for their division in 2017, it is best to think of BCH as a separate cryptocurrency today. It trades independently and has its own market price. For example, on a late 2019 trading day, BTC was trading at around $ 8,400 while BCH was trading at around $ 265.

4. Begin Trading Cryptocurrency Without Dollars

Once you purchase your first cryptocurrency, you can start trading in currency pairs without dollars, if you wish - for example, buying ether or zcash with bitcoin. To do this, you'll need to request Gemini's more advanced ActiveTrader user interface, when you first log in, see Upgrade from the original Tier homepage.

Setting Up Bitcoin Trading Alerts

When you pass the price of bitcoin (or other available cryptocurrency) above or below a certain threshold, Gemini's web exchange homepage or mobile app sets an alert to notify you. You can set the trading alert limit by typing in the dollar value above or below the current trading price, or by typing a percentage change (which the system translates to a specific dollar value).

Once your alert is set up, there is an improvement in getting an email immediately if the price drops or you pass a set limit. Alerts help you work on specific trading strategies that you can choose to pursue.

Bitcoin: A New Asset Class

Trading Bitcoin and other cryptocurrency should be a familiar process for most investors used to buy and trade other asset classes such as stocks, bonds, commodities and most notably currencies. But it may be best for investors to think of cryptocurrency and bitcoin in particular, as they have their own asset class.

In practice, cryptocurrencies have some similarities to equities, commodities and currencies, but their relative youth, volatility and tax treatment do not mean any other asset class.

This material is for general informational purposes only and is not an investment, tax or legal advice. Past performance may not be an indication of future results. You should consult your own qualified and charged tax, legal and accounting advisors before engaging in any transaction.