Bitcoin Contracts, Including Leverage, Margin, Spread, Bid, and Ask Price

Lots & Contracts

Trade Bitcoin cryptocurrency in standard lots. One standard lot equals 1 Bitcoin.

The Bitcoin contract defines the standardized volume of Bitcoin Cryptocurrencies designated for purchase or sale within the online Bitcoin trading sphere by a Bitcoin Trader. The standard Bitcoin lot, calculated as one unit of Bitcoin multiplied by the prevailing Bitcoin price, is not physically exchanged: rather, this single unit of Bitcoin is functionally represented by this contract specification.

The terms "one standard lot" and "one standard contract" mean the same thing, so they can be used interchangeably.

Why Trade Units of Bitcoins

One bitcoin contract trades BTCUSD to simplify online deals between traders. Each contract equals one bitcoin. Sellers or buyers place trades fast. Profits and losses settle quick with these contracts.

Movements in the price of Bitcoin are quantified in points. Specifically, a one-dollar shift in Bitcoin's price corresponds to one thousand points. Trading platforms typically display Bitcoin quotes to three decimal places: for instance, a price of $5530 would appear as 5530.000.

One point on a Bitcoin unit equals 0.1 cents. Price changes use tiny moves. Bitcoin, or BTCUSD crypto, quotes like $5530.000.

The last digit is the point - the third decimal point.

To address the rationale behind trading Bitcoin via contracts, we will utilize the example provided below for clarification:

The BTCUSD cryptocurrency will only fluctuate an average of approximately $100 dollars each day, this equals 100,000 units, if a single unit corresponds to 0.1 cents, then trading one unit will only yield a profit of 100,000 units multiplied by 1 cent which equates to $100 dollars in profit.

Bitcoin Contract

At the time of this writing, the Bitcoin price chart shows one contract equals 1 times $5,530. That adds up to $5,530.

This means to buy 1 lot of Bitcoin at the current price a trader needs to have $5530.000 dollars in their Bitcoin account. But how does a retail trader who does not have a lot of money to invest get such an amount of money?

But How Can any Trader afford $5,530.000 to Invest With?

That is a very good question: the answer is LEVERAGE and MARGIN

In Online Bitcoin trading, you do not need $5,530.000 Dollars to trade BTC/USD Crypto, with leverage & margin you only need $1,106 dollars to transact and trade a contract of Bitcoin, but how?

We shall explain using the example shown below:

Leverage & Margin Bitcoin Trading

In Bitcoin trading, a small deposit lets you handle a big position. This setup helps BTCUSD traders aim for larger gains. It keeps risk low since you risk only part of your cash. For example, deposit $1,106. With a 5:1 ratio, you control $5 for each $1 you have. You trade with five times your deposit.

Consequently, a trader possessing only $1,106 in their account can access financing up to five times their principal, resulting in a post-leverage account value of $1,106 multiplied by 5, equaling $5,530.00. With control over $5,530.00, the trader is then positioned to execute the trade for one standard lot of Bitcoin.

Leverage is shown as a ratio, like 5:1, which means that an online Bitcoin trading company will give a trader $5 for every $1 that the trader has. This means the company lets the trader borrow five times the money they put in. A leverage choice of 5:1 also means the company will offer the trader a chance to borrow five times the money they have deposited.

Margin - Margin is the cash your Bitcoin broker requires to let you trade with borrowed funds. It is also the deposit you make to open your account. For instance, if you add $2,000, your margin equals $2,000.

With leverage, regular Bitcoin traders can trade the online Bitcoin market. A leverage choice of 5:1 means that for every $1 you have, you can borrow $5: this borrowed $5 will be provided by your online Bitcoin broker.

This means the broker wants you to keep $1 in your account for every $5 they give you.

In a Bitcoin trading scenario: depositing $5,000 and utilizing 5:1 leverage boosts your trading power to $25,000, allowing up to four Bitcoin contracts.

Since the total value you currently manage is $25,000, while your actual capital stands at $5,000 - representing 20% of the total - this signifies that your mandated account margin requirement is set at 20%.

A Bitcoin broker might specify a 20% margin requirement, which translates to a leverage ratio of 5:1 - commonly considered the standard for Bitcoin trading.

Therefore, with leverage & margin as explained above it means that retail Bitcoin traders are not required to deposit all the cash for the whole contract that they are going to be trading with. The account they open they can trade on leverage and this account is known as a margin trading account - meaning they're trading on margin - the funds in their account is the margin for the leverage they will be using for trading.

Spreads

Spread means the gap between buy price and sell price from the broker.

Spread can alternatively be defined as the variance between the Bid Price and the Ask Price: the Bid/Ask pricing visualized below can be utilized to calculate spreads when trading the Bitcoin cryptocurrency (BTCUSD).

Essential Bitcoin Trading Parameters: Contracts, Leverage & Margin, Spread, and Bid/Ask Pricing - Bitcoin Leverage Calculator

Bitcoin Trading Spreads in the MT5 Platform

Example illustration of How to Calculate Bitcoin Spreads

The Bid ASK Price of Bitcoin is 5591.990/5577.980

The spread is 5591.990 - 5577.980 = 14010

Spread is equivalent to $14.01

This spread is the profit that the Bitcoin broker makes.

Bid/Ask Price

The bid represents the price at which you sell.

Ask is the market price at which you buy

If the quote for BTCUSD is 5591.990/5577.980

Bid/Ask = 5591.990/5577.980

Therefore:Bid Price = 5591.990Ask Price = 5577.980

Mini Lots

Bitcoin brokers also offer trading in fractions of 1 lot. Since 1 lot is equal to 1 contract, these smaller fractions make bitcoin trading more affordable. You can start trading with as little as $110.60 for a mini lot - a mini contract.

A fraction of an entire standard Bitcoin contract is termed a Mini Lot, which equates to one-tenth (1/10) of a standard Bitcoin contract size.

Mini Lot = 0.1 Unit of Bitcoin

These smaller-volume Bitcoin trading units (mini lots) were introduced with the objective of increasing the accessibility of the online Bitcoin Cryptocurrency trading sphere to retail investors and, in turn, attracting a larger volume of these investors. This accessibility may account for the massive popularity surge in online Bitcoin trading, allowing entry into the market with capital as modest as $110.6.

Bitcoins are traded in contracts, which lets people trade just fractions of a bitcoin - so you don't need to buy a whole coin to get in on the action.

More Topics and Courses:

Trade Bitcoin Trading