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Cryptoassets are highly volatile and unregulated in the UK. No consumer protection. Tax on profits may apply.

Bitcoin Trading for Beginners

Bitcoin Trading for Beginners

Updated June 30, 2022

Written by the WikiJob Team

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Cryptoassets are highly volatile and unregulated in the UK. No consumer protection. Tax on profits may apply.

Bitcoin was established in 2009. It was the world’s first cryptocurrency and is still the most popular and best known.

A cryptocurrency is a digital or virtual currency that is secured and traded using cryptography – a system of complex mathematical algorithms or codes.

Bitcoin was created by an anonymous person (or group of people) known as Satoshi Nakamoto. They aimed to establish an electronic cash system that was completely decentralised, operating on a peer-to-peer system.

Bitcoin is not owned by a central authority or government institution. It can be sent directly from user to user without any need for a middle-man, such as a bank.

Users can remain anonymous through the use of encrypted keys so bitcoin transactions cannot be traced back to them. Bitcoins can also be transferred and withdrawn anywhere around the world.

Bitcoin is notoriously volatile, as has been well-documented in the media in recent years. This high volatility means there is the potential to make good profit margins. But never forget this comes with risks.

With the added incentive of low entry levels, trading bitcoin has become an attractive option for many. However, anyone trading in any market should be aware that there are always risks involved.

In this article, we explore the basics of trading bitcoin, looking at how the cryptocurrency operates, reasons to consider trading bitcoin and what you will need to know before you get started.

How Does Bitcoin Operate?

Unlike paper money, bitcoins are not printed. Instead, they are ‘mined’ on computers.

Bitcoin mining requires high-powered computers and a lot of painstaking work, so miners are currently rewarded with 12.5 bitcoins for every new bitcoin they create.

Around 1,800 new bitcoins are mined every day and the most that can ever exist is 21 million – this was decided by Satoshi Nakamoto when they created Bitcoin.

As well as creating new bitcoins, mining serves to verify bitcoin transactions that have been made in the past.

Miners check that blocks of transactions are accurate before adding them to the blockchain – the blockchain is the technology behind bitcoin and is a series of blocks of data providing an immutable record of historical bitcoin transactions.

Crucially, this verification checks that bitcoins are not being duplicated. The blockchain acts as a ledger that anyone can download and check, but no-one can tamper with data that has already been added to the chain.

To earn their bitcoin, miners must verify 1 MB worth of transactions and solve a complex mathematical problem, also known as a ‘proof of work’.

To solve this problem, they must essentially guess a 64 digit-hexadecimal number, known as a hash, that is equal to or less than the target hash (hexadecimal is a system used in maths and computing that represents numbers using 16 different symbols, rather than the usual 10).

The chance of coming up with the correct hash is around 1 in 13 trillion and miners are racing against millions of others to be the first to complete a proof of work, so bitcoin mining is highly specialised and competitive.

Reasons to Consider Trading in Bitcoin

While mining bitcoin is not a viable option for most, trading bitcoin is fairly straightforward once you understand the basic principles.

As mentioned previously, bitcoin’s volatility is one of its main attractions to traders. This means we can see rapid price swings both up and down, and if bitcoin traders anticipate the market correctly, they can make significant profits. Of course, they can also make significant losses.

Another benefit of bitcoin is that you can trade around the clock. Most stock markets are limited to the working hours of the countries where they operate.

However, bitcoin can be bought and sold on exchanges around the world so it is possible to trade day and night. And as bitcoin is a global currency, it is not affected by the financial stability or situation of any single country. In fact, it can go up while other markets are falling.

Finally, the relative lack of regulation makes it an easy market to get started on, as you do not need to go through a lengthy verification process.

How to Get Started

Step 1. Check Your Internet Connection

The first thing you will need to trade bitcoin is a good, secure internet connection.

Step 2. Choose a Bitcoin Exchange

The next step is to open an account on a bitcoin exchange. This is a digital marketplace where you can buy or sell bitcoin.

There are two types of exchange:

  • Fiat to crypto – Here you can buy or sell bitcoin and other cryptocurrencies using fiat currency (for example, traditional currencies backed by the government that issued them). This type of exchange is generally beginner-friendly.

  • Crypto to crypto – These are for exchanging one cryptocurrency for another and are generally set up for more experienced traders.

Some of the most well-known bitcoin exchanges include Coinbase, Kraken, Binance and Bitstamp, but as there are many available, it is important to do your research before settling on one.

Things you should check include:

  • Safety standards – Several bitcoin exchanges have fallen victim to security breaches so you should check if the exchange you are considering is among those that have been hacked. Look for its privacy policies, user data encryption and whether it uses two-factor authentication.

  • Transaction fees – Some exchanges will charge for transactions such as deposits and withdrawals while others will offer these for free.

  • Usability – Make sure that you can easily navigate and understand the platform.

  • Reviews – Look on forums such as BitcoinTalk and Reddit to find out if others have had a positive experience using the exchange.

Cryptoassets are highly volatile and unregulated in the UK. No consumer protection. Tax on profits may apply.

Step 3. Open an Account

To open an account with a bitcoin exchange, you will need to register and go through a verification process to authenticate your identity.

Once your account is open, you can transfer funds to start buying bitcoins.

Step 4. Open a Bitcoin Wallet

Once you start buying bitcoin, you will also need a bitcoin wallet to store it in. This consists of a public address, which is where your bitcoins will be sent, and a private key which is used to unlock your funds and send bitcoin to others.

Unlike a bank account, when you store funds in a bitcoin wallet you are wholly responsible for their security.

There are different kinds of bitcoin wallets and the type you choose will depend on how you want to use your bitcoin and the level of security you want:

  • Mobile – This runs as an app on your phone and can be used to pay for goods directly. It is useful if you are using bitcoin daily but is vulnerable to hackers.

  • Web – This type of wallet is stored on an online server and controlled by a third party, such as a cryptocurrency exchange. Again, these are easy to access from any device with an internet connection. However, they are also at risk from hackers and there is the danger that the organisation operating the wallet might turn out to be untrustworthy.

  • Desktop – These wallets are downloaded and installed on your computer, so your private key is stored in your hard drive. They are more secure, as there is no third party involved, but they are still connected to the internet so vulnerable to hackers, malware and viruses.

  • Hardware – Using a secure hardware device to store your private keys is widely regarded as the safest way to store bitcoin. The most common form of hardware wallet is a USB stick.

  • Paper wallets – This involves printing off your public address and private code in the form of a QR code which you will then scan to make transactions. While not vulnerable to hackers or malware, you will need to take good care of the piece of paper containing your details.

Step 5. Buy Your Bitcoin

The price you pay for bitcoin depends on the exchange you use, there is no single global price.

Risks to Consider When Trading Bitcoin

Bitcoin has become very successful over the past few years and many are rushing to capitalise on the opportunities it presents.

However, cryptocurrency is still a very new market and remains highly risky. So while there is the potential to make money trading bitcoin, you should have a clear idea of the pitfalls you may encounter before getting started.

Cryptoassets are highly volatile and unregulated in the UK. No consumer protection. Tax on profits may apply.

A Volatile Market

As mentioned previously, the price of bitcoin is constantly going up and down so it is very hard to predict what will happen in a given period.

While this can lead to healthy profits, it can also mean big losses if you misinterpret what is likely to happen next.

Fraud

As there is little regulation of the bitcoin market, security is a major issue. While many bitcoin exchanges are reputable, others are not and there have been instances of investors being defrauded by fake exchanges.

Cyber Attacks

As discussed in the previous section, bitcoin exchanges are very attractive to hackers and if your bitcoins are stolen by a hacker there is no way to retrieve them.

Reliance on Technology

Bitcoin is a digital currency completely based on technology. This not only leaves it more open to cyber-attacks and fraud but it also means that it is not backed up by any physical collateral, such as gold or property. If the technology fails or is shut down, bitcoin is worth nothing.

Emerging Market

Bitcoin is still in its early stages so there is little data or experience to draw on. There is a lot of uncertainty around how it will evolve in the coming years.

There are different methods for trading bitcoin and other cryptocurrency and, in this section, we look at some of the most popular approaches.

It is also important to note that there is a difference between investing in bitcoin and trading it. 

Bitcoin investors will buy the currency and then hold on to it for a lengthy period in the belief that its value will ultimately go up.

Bitcoin traders, on the other hand, are looking to make a profit by buying bitcoin and then selling it again after a short period.

They may do this by adopting one or more of the following approaches:

Day Trading

Day traders will make several trades during one day to benefit from short-term price movements.

Day traders may hold their assets for a few minutes or a couple of hours but the idea is always to sell them by the end of the day to make quick, small profits.

Scalping

This is similar to day trading but taken to the extreme. Scalp traders will buy and sell bitcoin very rapidly, holding their assets for a matter of minutes or even seconds before selling up.

They may operate around the clock, making hundreds of trading moves within a 24 hour period. As with day trading, the aim is to make many small, quick profits in a short timeframe.

Swing Trading

This involves holding a position for longer than a day.

Swing traders will look at the bigger picture, studying trends in the market and trying to predict when price movements will begin and end. Once they have entered the market they may hold their position for days, weeks or even a couple of months as they monitor the market before trying to sell up at the best time to profit from movements in price.

Best Bitcoin Brokers to Try

1. eToro

Best for: Beginners

The eToro website contains a wealth of information on the details of buying bitcoin, making this exchange well suited to those just starting out in bitcoin trading.

Traders who sign up with eToro get a virtual trading account with $100,000 in it to allow them to practise strategies before trading with real money.

The company also offers trading courses and features a Learning Lab which houses a variety of tools to support clients with their trading experience.

In the UK, eToro is regulated by the Financial Conduct Authority (FCA) and money is kept in tier one European banks.

Unlike other exchanges in this list, eToro supports deposits and withdrawals to and from external wallets.

Visit eToro

Cryptoassets are highly volatile and unregulated in the UK. No consumer protection. Tax on profits may apply.

2. Degiro

Degiro is Europe’s leading investment platform, and it started as a wholesale broker, giving low rates and exclusive opportunities to professional clients.

Now, it is one of the largest retail stockbrokers in Europe and it has its own banking licence – which is not all that common in brokers. Degiro is regulated by both BaFin and the FCA.

Opening an account with Degiro is a simple, fast process that can be completed online – you just need ID and a bank account.

There is no minimum deposit for any account type with Degiro. There are five different account types that you can choose from, including Custody, Active and Day Trader. Each account has different features, functions and services, so you need to choose the one that best suits your trading style.

There are no account or inactivity fees, but you can only deposit using your bank account – not with credit or debit cards. You may only open an account in your home currency, so you cannot have a separate account in a different currency.

Trading on Degiro is simple and straightforward, whether you are using the web trader or the mobile app. Both are well-designed and easy to use, so they are suitable for the new trader, but they lack customisation and some tools that an advanced trader would want to see.

One of the best features, especially for a new trader, is that you can see the total cost of your trade, including fees, before you execute it.

You can trade several instruments using Degiro, including:

  • 31 Stock Markets
  • 5,400 ETFs
  • 63 Bond providers
  • 649 Bonds
  • 12 options markets
  • 14 futures markets

You cannot trade forex, crypto, or CFDs with Degiro, and there is a monthly cost to trade US derivatives (options and futures).

New traders won’t find reams of education, and the lack of demo account can be a problem. However, the ‘knowledge’ tab does have a good selection of educational material, from a 10-lesson Investors Academy to platform tutorials and articles about basic strategies and products.

Visit Degiro

3. Uphold

Uphold was launched in 2015, and since then it has handled more than $4 billion in transactions, trading in 184+ countries with more than 30 currencies.

Uphold allows clients to trade directly between different asset classes in one transaction – so you can trade anything to anything.

With Uphold, you can trade 58 digital currencies, precious metals like gold, silver, platinum and palladium, as well as fractional equities in shares of US companies like Amazon, Tesla and Apple.

Uphold also focuses on Socially Responsible Investing (SRI) by providing an opportunity to trade on carbon tokens for more than just a financial return.

New traders will like the transparent pricing – there are no commission or account fees, and no withdrawal or deposit costs, but the trading fees are built into the spread. Uphold will present a complete price for each trade that includes fees, so you will know exactly what the trade will cost.

Uphold has a quite simple trading platform that is available on the web, as a desktop application and on mobile.

Uphold also offers a debit card option, where you can pay for goods and services using any asset in your portfolio – and earn cashback as well as crypto on your purchases.

There are a range of blogs and articles available that are full of knowledge and information, ready for you to use if you need a little extra help.

Visit Uphold

Frequently Asked Questions

If you have decided that you would like to trade bitcoin, the first thing to do is to find the right platform for you.

These are often known as bitcoin exchanges. There are several options to choose from and many of them will also offer demo accounts so that you can learn how trading works and the features of each platform.

Some of the best platforms for beginners to consider are:

Cryptoassets are highly volatile and unregulated in the UK. No consumer protection. Tax on profits may apply.

Bitcoin is one of the most well-known and widely recognized cryptocurrency options available.

This makes it one of the best options for people to trade when they are beginning to learn about trading and markets.

Cryptoassets are highly volatile and unregulated in the UK. No consumer protection. Tax on profits may apply.

Many bitcoin exchange platforms will offer users educational resources and demo accounts. These allow individuals the opportunity to learn about how trading works and practice developing their own strategies before risking real money.

Cryptoassets are highly volatile and unregulated in the UK. No consumer protection. Tax on profits may apply.

There are several free courses available online which will offer you an introduction to the world of bitcoin.

Many platforms and exchange platforms will also offer educational resources, training tools and demo accounts to allow users to learn and practice their skills.

The first thing to do is choose a cryptocurrency exchange platform that suits your needs. Some of the best options for beginners are:

Cryptoassets are highly volatile and unregulated in the UK. No consumer protection. Tax on profits may apply.

Trading is never without risks. No matter how careful you are, you will always have the potential to lose money.

Having said that, taking the time to learn about cryptocurrencies and using demo accounts to build strategies can help to boost your chance for success.

Cryptoassets are highly volatile and unregulated in the UK. No consumer protection. Tax on profits may apply.

There are no risk-free strategies and it is important to recognize this before you invest any money. There are, however, some strategies and techniques which are considered to be lower risk than others.

An example of this would be copy trading which doesn’t require in-depth knowledge. One of the best ways for a beginner to develop your strategy is to use demo accounts which will enable you to practice trades without losing money.

Cryptoassets are highly volatile and unregulated in the UK. No consumer protection. Tax on profits may apply.

There is a lot of contradictory advice when it comes to any kind of trading and it can be difficult to know who to trust. It is always recommended to choose reputable resources when you are thinking about investing.

If you choose a course, you should make sure that it is backed up by a recognized body.

It is usually a safe option to trust the educational resources which are available on platforms as these platforms are monitored and regulated.

Cryptoassets are highly volatile and unregulated in the UK. No consumer protection. Tax on profits may apply.

For quite a long time now, bitcoin has consistently been one of the best options for those looking to invest in cryptocurrency.

Cryptoassets are highly volatile and unregulated in the UK. No consumer protection. Tax on profits may apply.

As with any form of trading, you should never invest more than you can afford to lose. No matter how careful you are to build a strategy, there is always the potential to lose money. Before you invest, you should consider how much you can afford.

Cryptoassets are highly volatile and unregulated in the UK. No consumer protection. Tax on profits may apply.

Final Thoughts

There has been a lot of media interest and hype around bitcoin in recent years, with reports of people making their millions by trading and investing in the cryptocurrency.

Bitcoin and other virtual currencies have made trading more accessible, with lower entry levels and the opportunity to trade wherever you are in the world as long as you have an internet connection.

As a young and volatile market, bitcoin offers exciting opportunities, but there are also many risks involved. With the potential to make a lot of money there comes the potential to lose a lot too.

If you are considering trading bitcoin, you should make sure you have learned all you can about the market, researched your trading strategy and identified a reputable exchange platform. And, as with all kinds of trading, you should never invest more than you can reasonably afford to lose.

WikiJob does not provide tax, investment or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.

Cryptoassets are highly volatile and unregulated in the UK. No consumer protection. Tax on profits may apply.


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