Bitcoin Trading Basics

Bitcoin trading is the exchange of the Cryptocurrency Bitcoin for US Dollars. Bitcoin Traders can make money when Bitcoin prices are moving up or moving down. When the market is moving upwards a trader will buy the Bitcoin Cryptocurrency, when Bitcoin is moving downwards a trader will sell the Bitcoin Cryptocurrency.

When a trader buys Bitcoin they exchange their dollars for the Bitcoin Cryptocurrency, when a trader sells Bitcoin they exchange their Bitcoin and hold value in the form of dollars.

Bitcoin Price Quotes

The Bitcoin price quotes represent the exchange rate at which theBitcoin Cryptocurrency will be exchanged for US dollars. Bitcoin Crypto is measured in units of 1 Bitcoin and the exchange quotes represent the price of 1 Bitcoin.

Bitcoin in the online exchange market is quoted as BTCUSD - BTC represents Bitcoin and USD represents US Dollars.If the price of Bitcoin is $5500 then this will be represented by the quote symbol of BTCUSD and the quote price will be denoted as $5500.000 - a Bitcoin quote will have three decimal points added to the Bitcoin price to represent the quote price.

If price of 1 Bitcoin is quoted as $5500.000 it means a trader will buy one Bitcoin for $5500.000. If a trader on the other hand wants to sell their Bitcoins then they will get $5500.000 for every Bitcoin that they have.

Bitcoin Lots or Bitcoin Contracts

When it comes to trading Bitcoin online - Bitcoin is traded in lots or batches. One lot of Bitcoin will comprise of 1 Bitcoin. Bitcoin is traded in lots so that traders can also trade fractions of 1 Bitcoin - for example a trader can choose to trade 0.1 lots of Bitcoin. In Bitcoin price the least movement is one point and this one point is equal to 0.1 cent.

In online Bitcoin trading there is no physical exchange of Bitcoin bars for cash, instead Bitcoin is traded using contracts that represent the same value of Bitcoin. Traders will buy or sell these Bitcoin contracts based on the exchange quote price and transact these from their Bitcoin trading accounts. As long as trader has the required account balance in the Bitcoin account they can open trade transactions and open Bitcoin contracts.

Leverage

To trade Bitcoin contracts that are traded in lots, then a trader would need to have an account balance of $5,500 - one Bitcoin is equal to $5500.000.

Most retail investors cannot afford this amount to invest with. This is where leverage comes in. Leverage is provided to the trader by their broker.

The most common leverage for Bitcoin trading is 5:1 which means that a trader can borrow up to 5 times the amount they deposit as their capital. For example a trader with an account balance of $10,000 can borrow up to 5 times this amount - therefore the trader will have a total of $50,000 to trade with. With this leveraged amount a trader can then afford to buy 9 contracts of Bitcoin which is equal to $49,500 and even have an extra $500 of this leveraged amount.

This leverage is what makes Bitcoin trading popular among retail investors, because these traders can make much larger trades while investing little of their own capital. This leverage therefore increases the profits that a trader can make when trading the Bitcoin market. However, this leverage also increases the losses that a trader can make as well.

Margin

Margin is the amount of money required by your broker so that your broker can continue allowing you to trade with the leveraged amount. This is the money that you deposit in your account before you start trading. If you deposit $10,000 then this is your margin.

Calculating Profits in Bitcoin Trading

In Bitcoin trading the one point move which is the least move in the price quote is equal to 0.1 cent. When Bitcoin is traded in lots of 1 Bitcoin, then the 1 point move in the price of Bitcoin will be equal to $0.1 cents.

This means that if Bitcoin moves from $5500.000 to $5501.000 - this 1,000 point price movement will mean that a trader will make a profit of $1 from this transaction.

If the price of Bitcoin was to move up by $100 from $5500.000 to $5600.000 then a trade would make a profit of $100. On average Bitcoin price moves about $100 dollars per day.

Bid/Ask Price

Bid - price at which you sellAsk - price at which you buy

For example the bid/ask price can be quoted as $5500.000/$5514.000, which means the price at which you sell is $5500.000 and the price at which you buy is $5514.000.

Spread

The spread is the difference between the bid price and the ask price. For example if bid/ask price is $5500.000/$5514.000 then the difference between these two prices is 14,000 points ($14) and this is known as the spread.

Spread is therefore the difference between the price at which you buy and the price at which the broker is offering to sell.