Bitcoin Basics

Trading Bitcoin involves the exchange of the Bitcoin cryptocurrency for US Dollars. Participants engaging in Bitcoin trading stand to realize profits whether the price of Bitcoin is ascending or descending. When the market trajectory is upward, a trader will opt to purchase the Bitcoin cryptocurrency: conversely, if Bitcoin's value is falling, a BTC/USD trader will execute a sale of the Bitcoin cryptocurrency.

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

Bitcoin Price Quotes

Bitcoin price quotes show the rate to swap Bitcoin for US dollars. Crypto uses units of 1 Bitcoin. The quotes give the cost of one Bitcoin.

Bitcoin in the online exchange market is quoted as BTCUSD - BTCUSD represents Bitcoin and USD represents US Dollars.If the price of Bitcoin is $5500 & 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 the market price for a single Bitcoin is quoted as $5500.000, this signifies that a BTC/USD trader can acquire one Bitcoin for that stated amount of $5500.000. Conversely, if a trader wishes to liquidate their Bitcoins, they will receive $5500.000 for every unit of Bitcoin they possess.

Bitcoin Lots or Bitcoin Contracts

When trading Bitcoin online, it is traded in groups known as lots. Each Bitcoin lot contains one Bitcoin. Bitcoin is traded in lots so traders may trade portions of a Bitcoin: for instance, a trader can trade 0.1 lots of Bitcoin. The smallest price change in Bitcoin is one point, equaling 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 lots 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 positions & open Bitcoin contracts.

Leverage

To trade bitcoin contracts in lots, keep an account balance of $5,500. One bitcoin equals $5,500.

Most retail investors typically do not possess sufficient funds to invest substantial amounts. This scenario is where leverage becomes beneficial, as brokers provide it to traders.

The most frequently observed leverage setting for BTCUSD trading is 5:1, signifying that a trader can borrow up to five times the deposited capital amount. For instance, consider a trader possessing an account equity of $10,000: they are entitled to borrow up to five times this sum, resulting in a total tradable amount of $50,000. With this leveraged capital, the trader can then purchase 9 Bitcoin contracts, valued at $49,500, retaining an additional $500 cushion from the leveraged principal.

This leverage feature is precisely what makes Bitcoin trading appealing to many retail investors, as it allows these traders to execute significantly larger trade volumes while committing only a minimal portion of their personal capital. This leverage mechanism, therefore, magnifies the potential profits a trader stands to earn from market participation. Conversely, this same trading leverage also amplifies the potential losses a BTCUSD trader might incur.

Margin

Margin represents the amount of money required by your broker to enable trading with leverage. This is the initial deposit you make into your trading account before initiating trades. For instance, a deposit of $10,000 would serve as your margin.

Calculating Profits in Bitcoin Trading

In BTC USD trading, the smallest price move is one point, worth 0.1 cent. For a lot of 1 Bitcoin, that point equals $0.1.

This means if Bitcoin's price goes from $5500.000 to $5501.000, this 1,000-point change means a trader makes $1 in profit from this trade.

If Bitcoin's price were to increase by $100, moving from $5500.000 to $5600.000, a trader would realize a $100 profit. On an average day, Bitcoin's price fluctuation is approximately $100.

Bid/Ask Price

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

The bid/ask price, for instance, may be listed as $5,500. 000/$5,514. 000, indicating that the price at which you sell is $5,500. 000 and the price at which you buy is $5,514. 000.

Spread

The spread refers to the difference between the bid price and the ask price. For instance, if the bid/ask price is $5500.000/$5514.000, the difference of 14 points ($14) constitutes the spread.

Consequently, the spread represents the disparity between the price at which a trader executes a buy order and the price offered for sale by the broker.

Get More Topics and Tutorials and Lessons:

Trade Bitcoin Trading