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What You Need To Know About Trading Bitcoins

The price of bitcoin is very volatile, meaning that it can go up and down very significantly within a very short period of time, even a day or two. This means that you can make a lot of money trading bitcoins if you learn to predict increases and decreases in prices.

While you can hear a lot of stories about bitcoin traders making a lot of money, you need to know that there are also stories about things going in the opposite direction and people losing their money while trading cryptocurrencies. Because of this, you always need to be aware of risks and trading the amounts that you can afford to lose if things don’t go your way.

 

Day trading cryptocurrencies vs fiat currencies

Day trading is a term that describes buying and selling various financial instruments and vehicles within one trading day. You can day trade using cryptocurrencies in several ways. The most obvious way is to trade a cryptocurrency such as bitcoin versus local currencies that you can trade it against in your country.

In most countries, day trading is very heavily regulated, which is why what you can and can’t trade bitcoins and other cryptocurrencies against will depend on the country of your residence. Legal status of cryptocurrencies depends varies greatly from country to country.

As of November 2017, there are only several countries that consider the usage of cryptocurrencies to be an illegal activity. These countries are Bangladesh, Ecuador, Kyrgyzstan, Nepal, and Bolivia. In September of 2017, China banned all the initial coin offerings (ICOs) and shut down all mainland cryptocurrency exchanges. Two of the biggest cryptocurrency exchanges in the country issued statements in September saying that that will stop trading between cryptocurrencies and the yuan by the end of October 2017. These events show that the Chinese government decided to significantly curb usage and trading of digital currencies in China.

One of the reasons for this is that in most cases traders decide to trade digital currencies against major fiat currencies because there is much more trading volume compared to trading cryptocurrencies against some small currency. Before the government of China shut down digital currency exchanges, trading of bitcoins against Chinese yuan was the biggest fiat trading market in the world.

If you already own funds in digital currencies, you do not need to obtain any local fiat currency prior to starting to trade. All you need to do to begin trading is transfer some funds from your wallet into your exchange account and start trading. Because of the volatility of cryptocurrencies, some days will have major changes in exchange rates while others will be somewhat slow and quiet, which is the nature and life of all day trading operations.

Today there are quite a few merchants that accept payments in bitcoins and other cryptocurrencies, yet most of the merchants and cryptocurrency merchant processors choose to quickly convert digital currencies into regular local fiat currencies. This happens because of high volatility of digital currencies. Merchants and merchant processors choose to work with digital currencies because they can get more customers and more revenues by accepting bitcoins and other cryptocurrencies. At the same time, they are not in the currency trading business. They are not looking to make more money by trading digital currencies. Instead, they are looking for stability and for them stability is getting funds in regular currency as quickly as possible. For this reason, some exchanges may have quite a few large sell orders of bitcoins and other cryptocurrencies going through certain times, which creates a great opportunity to buy some digital currency at a somewhat discounted rate.

This being said, day trading cryptocurrencies is definitely not for beginners. While you can try and trade some bitcoins against major fiat currencies, do not expect to make a lot of money if you do not have previous day trading experience.

For a guide on how to buy bitcoin, please check out this informative article by Crypto Currency News.

 

Day trading bitcoin versus altcoins

Altcoins is a short umbrella term for alternative digital currencies. These currencies are the competitors of bitcoin. Since bitcoin is a fully transparent digital currency, it has an open source code. Most altcoins use bitcoin’s source code.

Altogether, there are over 1,000 altcoins in existence. Trading bitcoins against altcoins is yet another option of trading bitcoins. Many altcoins try to improve bitcoin. They believe that they can implement the blockchain technology and the ideas of transparency and freedom into real life better than the creators of bitcoin did with their digital currency. Some feel that there is a need in the market for more anonymity when it comes to digital coins, while others try and explore the boundaries of blockchain technology. Rather than try and use their ideas to improve the bitcoin network and the bitcoin currency, they use the source code, change the name and launch a brand new cryptocurrency.

Over the years, this scenario repeated a number of times, which is why there are so many altcoins in existence. However, only a handful of altcoins were able to become successful, including ethereum and litecoin.

Ethereum came to life after a whitepaper by Vitalik Buterin in 2013. Buterin is a Canadian software developer of Russian descent. In his whitepaper Buterin argued that the bitcoin network needed a scripted language so that developers could create new software. He was not able to get enough people to agree with him, so Buterin decided to start a new network of his own. Initially, there have been 4 people on the Ethereum team. They ran a crowdfunding campaign in July and August of 2014, during which they sold Ethereum currency units called ethers.

Litecoin is yet another attempt to improve on the idea of bitcoin. The creator of Litecoin is Charlie Lee. Before launching Litecoin, Lee used to work for Google. The Litecoin network became live in October of 2011. During the month of November in 2013 the price of Litecoin doubled within 24 hours, allowing the value of Litecoin to surpass $1 billion in capitalization. In August of 2017 the capitalization of Litecoin was about $2.5 billion.

One of the goals of the bitcoin network is to generate a new block on the bitcoin blockchain network every ten minutes. Litecoin has a goal of generating a new block every 2.5 minutes. Litecoin also has a larger number of coins available and uses a different security algorithm to generate hashes for the blocks of the Litecoin blockchain.

While none of the altcoins have capitalization or community as big as those of bitcoin, there are still a lot of opportunities in trading these coins.

Some altcoins launch because of pump-and-dump schemes. A pump-and-dump scheme is when develops create a lot of hype for their future coin and promise users a lot of advantages and benefits. They typically do so by using online forums and communities for cryptocurrency owners and followers. They may use various accounts and show screenshots trying to prove how much money they are making with a new coin. As people learn about these features, they start buying the coins at a very low price. Demand starts driving the price of the coins up. Developers then sell the coins that they have initially mined, make some money and stop developing the network. Typically, when they start selling their coins, they sell a lot and the price starts going down. People who bought the coin start to panic and also try to sell, which makes the value of coins fall even faster.

Some developers use a different method to get rich quick. Instead of trying to drive the price of their coins up, they encourage people to spend large sums of regular money to buy new coins in volume. Once they succeed, they cash out and start working on a new coin next month.

Because get rich quick schemes have been attracting people for centuries, there are a lot of developers and a lot of coins entering the markets all the time. While most such coins will never serve an actual purpose other than to make their creators rich if you can buy such coins before the price goes up and before the coin goes bust, you can make some money. This being said, becoming greedy and spending a lot of money on such transactions can be a recipe for a disaster because the prices can plummet even faster than they can go up.

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