Bitcoin – The 5 steps to start trading

Cryptocurrency trading has seen an incredible rise in popularity in recent years. In a survey conducted in 2022, it was found that millennials (ages 26-41) were more likely to invest in digital currency than the older generation (ages 42-76) [1].

Millennials have many more years left before retirement, which is part of the reason they can take more risk with their investment strategies, given that they have a much longer investment horizon compared to someone who is rapidly approaching retirement [2].

Trading cryptocurrency Contract for Difference (CFD) is also a method that one can use to trade cryptocurrencies. Cryptocurrency CFD trading can also be a faster way to gain exposure to cryptocurrency, compared to buying Bitcoin itself, as it does not require opening a digital wallet or an account with cryptocurrency exchanges.

Here are 5 steps to trade Bitcoin CFDs in the cryptocurrency market with Vantage.

What are Cryptocurrency, CFD and Bitcoin CFD?

Cryptocurrencies are a form of digital currency that is secured with cryptography, and this makes it difficult to counterfeit [3]. Many cryptocurrencies are built on decentralized networks that are based on blockchain technology – an advanced database mechanism that allows a shared ledger to facilitate the process of recording, tracking and sharing information about assets in the network. This also means that they are not dependent on intermediaries such as banks or other financial institutions to function.

One of the advantages of trading cryptocurrencies is that they can have a lower correlation to traditional asset classes such as bonds or stocks.

There are several methods you can use to own these cryptocurrencies, such as buying them on the cryptocurrency market, mining them and storing them in your cryptocurrency wallet or digital wallet on cryptocurrency exchanges.

CFD trading are derivative instruments that enable traders to speculate on price movements in a wide range of financial markets such as fiat currency forex pairs, stocks, commodities, indices or cryptocurrencies, without taking direct ownership of the underlying asset. When you trade CFDs, you are essentially trading on the price movement of the underlying products or asset classes.

Bitcoin CFDs are investment vehicles that allow you to speculate on the rise or fall in the price of Bitcoin without actually owning the underlying asset which is Bitcoin itself.

How does Bitcoin CFD trading work?

Bitcoin CFD trading is the buying and selling of the digital currency, Bitcoin, with the potential for returns from the changing value of the price movement. Bitcoin CFD is traded through a broker that is as easy and secure as trading stocks and forex.

With Vantage you can buy and sell cryptocurrency CFDs by predicting the price movements of Bitcoin. Vantage also offers no overnight fees when trading with their exchange-free account on all cryptocurrency CFDs.

Here are some examples of Bitcoin CFD trading:

When the closing price of the Bitcoin CFD is higher than the opening price, the seller will pay the buyer the difference and this is how the buyer will make money. When the closing price of the Bitcoin CFD is lower than the opening price, the buyer will pay the difference into the seller’s account at a loss.

Another example is when you choose to trade by going long or short. When you place a ‘long position’ trade, your open position will only increase in value as Bitcoin’s price increases. If the price of Bitcoin falls, your position will lose value.

The difference between trading Bitcoin CFDs and trading cryptocurrency traditionally

A main difference when trading cryptocurrency CFDs and trading cryptocurrency directly is the ownership of the underlying cryptocurrency.

When trading cryptocurrency traditionally, you are required to have a cryptocurrency wallet with the trading platform or an exchange. This wallet is required for you to store the purchased cryptocurrency. When you trade Bitcoin CFDs, you only agree to trade the difference in the price of the Bitcoin from the time the contract is opened until it is closed.

Another difference between Bitcoin CFD and cryptocurrency trading is that you are able to speculate on the price movement in either direction, with profit or loss depending on how accurate your forecast is. In traditional cryptocurrency trading, in order to make money, you will strive to buy the cryptocurrency coins at a lower price and sell them when the price of the cryptocurrency coins goes higher to earn based on the gain in price.

Benefit of trading Bitcoin CFDs

Potential for upside in both rising and falling markets

CFDs usually create trading opportunities on price differences. Since you are able to make short or long trades when trading CFDs, you trade on the opportunities that arise when the market moves either way. Yes, that means the potential to reap returns even when markets fall.

No expiration dates

CFDs allow you to trade the price movement of Bitcoin CFD without an expiration date. You can enter a long-term CFD position, unlike futures contracts which have a preset price with a future expiry date.

CFDs as hedging tools

You can hedge other holdings in your trading portfolio with Bitcoin CFDs. Hedging refers to opening a position in a financial instrument with the aim of offsetting one’s exposure to price fluctuations of another asset that moves into the opposite position. For example, you can short or long with Bitcoin CFD regardless of the direction of the market which allows you to secure your portfolio at any time. This helps you reduce your risk exposure.

Ownership of underlying assets is not required

Trading Bitcoin CFDs allows you to start trading crypto without having to own the cryptocurrency itself. You only need to deposit capital into the CFD trading account to start trading.

Trade using leverage

Bitcoin CFDs allow you to make trades far larger than your actual deposit, through leverage. For example, when you trade with Vantage, you can buy and sell cryptocurrency CFDs with leverage up to twice as much. Be aware that leverage can amplify both profits and losses.

Disadvantages of trading Bitcoin CFDs

You do not own the cryptos

When you trade cryptocurrency CFDs, you don’t actually own the cryptocurrencies. You are simply speculating on the price of the trading platforms. If you want to own the cryptocurrency, you need to withdraw your money from the trading platform and place it in a cryptocurrency exchange that allows you to trade Bitcoin as a product.

This will then require you to have a Bitcoin wallet to store Bitcoin on the Bitcoin exchange platform.

Cost considerations

Cryptocurrency CFDs come with an additional cost in the form of a spread that represents the difference between the buy and sell price. The less liquid and riskier an asset is, the greater the spread you have to pay.

Overtrading

Easy access to CFD trading and low requirements can lead to overtrading. Since most brokers provide a low margin trading requirement, you may fall into the trap of overtrading. This will expose your portfolio to the markets more than you can handle and your remaining capital cannot cover any losses. So it is important to have proper risk management when trading CFDs.

Leverage can be a double-edged sword

Leverage or margin trading not only enhances your returns, but it can also lead to significantly higher losses. Cryptocurrency markets are highly volatile, resulting in multiple intraday changes, often making it difficult to make accurate predictions about future price movements.

5 steps to start trading Bitcoin CFDs

To start your Bitcoin CFD trading journey, you can follow these steps:

1. Open your trading account with Vantage

First, open a trading account with Vantage here. All it takes is 5 minutes to open a live trading account with Vantage. To complete your registration process, proof of identification documents and proof of address are required to verify your account. Once your account is verified, you can access all the features of your account and start trading Bitcoin CFDs.

2. Fund your trading account

Once your Vantage trading account is complete, you can begin depositing funds into your account to start trading. Vantage offers a variety of payment methods for depositing money into your account. Please note that financing options may vary from country to country.

3. Create a trading plan

A solid trading plan can help you determine your trading timeframe, risk appetite, and ideal capital to open any leveraged positions. Having a proper trading plan will help you make calculated decisions and better decisions about your desired return, acceptable loss and the risk management strategies you can use that can protect your capital [4].

4. Open and monitor your first position

Once you have chosen your markets, you decide whether you want to go long or short. You can open a sell position if you expect the price of Bitcoin to decrease. CFDs give you the ability to access both long and short options. You may consider using tools such as setting a stop-loss to help manage risk and reduce exposure according to market conditions.

5. Close your first position

When your position moves in your favor, you can click the “close” button to exit the trade. You can also use this button to exit any losing trades and take an acceptable loss. To close a long position, you will “sell” your CFD, and to close a short position, you will “buy” a CFD.

Tips for traders without trading experience

Vantage also offers a demo account for new traders embarking on their trading journey. Take advantage of the Vantage demo account to pick up all the necessary skills a trader needs and practice risk-free trading with virtual funds up to $100,000. Register here for your demo account.

You can take your time and practice trading various products offered by Vantage, such as CFDs on crypto, forex and stocks.

For experienced traders who want to adapt to an ever-changing market, you can also take advantage of the demo account to test out new strategies in a risk-free trading environment. To stay ahead of the game, you must constantly test new trading strategies and adapt to changing market conditions.

Ready to get started? Open a live account here to start trading the market when opportunities arise.

Reference:

1. “Younger generations more bullish on cryptocurrencies – Investopedia” accessed November 07, 2022
2. “Most Millennial and Gen Z Investors Say Crypto Is Part of Their Retirement Strategy – Money.com” Accessed November 07, 2022
3. “Cryptocurrency Explained with Pros and Cons for Investing – Investopedia” accessed November 07, 2022
4. “CFD Trading Strategies for Trading Stocks, Forex and More – Skilling” Accessed 07 November 2022