Bitcoin trading: A simple guide for beginners on how to trade Bitcoin (BTC)

Bitcoin (BTC) has revolutionized the financial world, offering unprecedented opportunities for both investors and traders. However, beginners wishing to do Bitcoin trading can find it daunting, seeing that the crypto market is extremely volatile and can be complex at the same time.

Some of the common questions that those who are new to crypto trading and especially, Bitcoin trading ask include what exactly is Bitcoin trading, and how does it differ from investing? What are the various methods to trade Bitcoin, and what factors influence its price? How can one analyze Bitcoin’s price movements effectively?

Well, this guide is designed to answer these questions and more, providing you with a comprehensive, easy-to-follow roadmap to start your journey in Bitcoin trading.

With clear explanations, practical examples, and a step-by-step approach, this guide breaks down complex concepts into manageable parts, ensuring you can trade Bitcoin with confidence.

You could first read this: What is Bitcoin (BTC)?

Why trade Bitcoin?

Let’s start with why the need to trade Bitcoin (BTC).

Well, Bitcoin’s price swings create opportunities. One day it’s $90,000; the next, it’s $105,000, and traders can buy low and sell high, profiting from these shifts.

Plus, Bitcoin trades 24/7, unlike stocks and Forex, and anyone with an internet connection can join in.

Whether you’re drawn by the potential profits or the idea of a borderless currency, trading BTC is a hands-on way to get involved.

Bitcoin trading vs. investing in Bitcoin: What’s the difference?

Trading is about short-term gains. You buy and sell Bitcoin — sometimes within minutes — to cash in on price changes. It’s active, fast-paced, and requires constant attention.

On the other hand, investing is about the long game. You buy Bitcoin and hold it for months or years, betting it’ll be worth more later. Both can work, but they suit different mindsets.

• Trading example: You buy 0.1 BTC at $30,000 (meaning you will use $3,000 to purchase the 0.1 BTC) and sell at $32,000 (meaning you will sell the 0.1 BTC at $3,200), pocketing $200.
• Investing example: You buy 0.1 BTC when the price of Bitcoin is $30,000 (meaning the 0.1 BTC will be worth $3,000 and hold it for a year, after which the price rises to $100,000. If you the 0.1 BTC will be worth $10,000, meaning you will have made a profit of $7,000.

Which is right for you?

Ask yourself:

• Time: Can you check prices daily (trading) or prefer a set-it-and-forget-it approach (investing)?
• Risk: Can you handle quick losses (trading) or prefer slower, steadier growth (investing)?
• Goals: Want fast cash (trading) or long-term wealth (investing)?

If you love action and can stomach volatility, try trading. If you believe in Bitcoin’s future and want less stress, investing might be your path. Many beginners dabble in both to figure it out.

Different ways to trade Bitcoin

Bitcoin trading isn’t one-size-fits-all. There are multiple methods, each with unique mechanics, benefits, and risks.

Let’s dive into the three main approaches: spot trading, peer-to-peer (P2P) trading, and derivatives trading (including CFDs, futures, perpetual futures, and options).

Spot Bitcoin Trading

What is spot Bitcoin trading?

Spot trading is the simplest way to trade Bitcoin. You buy or sell actual Bitcoin on a cryptocurrency exchange like Coinbase, Binance, or Kraken at the current market price.

When you buy, you own the BTC. Think of it like buying apples at a market.

It’s perfect for beginners because it’s straightforward.

How to do spot Bitcoin trading

• Step 1: Sign up on an exchange and deposit money (e.g., dollars or euros).
• Step 2: Buy Bitcoin at the “spot” price, the real-time rate.
• Step 3: Hold it in your exchange wallet, move it to a personal wallet, or sell it later.
• Fees: Exchanges charge a small percentage (e.g., 0.1%–2%) per trade.

Example

You deposit $500 into Binance. Then, when Bitcoin’s price is $30,000, you buy 0.0166 BTC (NB: there are fees which vary depending on the crypto exchange you are using). If the price rises to $31,000, your 0.0166 BTC is worth $514.60, translating to a profit of $14.60.

Pros and Cons

• Pros:
  • Easy to grasp and execute.
  • You own the Bitcoin outright.
  • No complex contracts.
• Cons:
  • Fees add up with frequent trades.
  • You’re responsible for securing your Bitcoin.

Peer-to-Peer (P2P) Bitcoin trading

What Is P2P Trading?

P2P trading lets you trade Bitcoin directly with another person, skipping the exchange middleman.

Platforms like LocalBitcoins or Paxful connect buyers and sellers, letting you pick payment methods like cash, PayPal, or bank transfers. It’s like a digital flea market for Bitcoin.

How to do Bitcoin P2P trading

• Step 1: Join a P2P platform and browse offers (e.g., “Selling 0.5 BTC for $15,000 via bank transfer”).
• Step 2: Agree on terms with the seller or buyer.
• Step 3: Send payment (or Bitcoin if selling), and the platform’s escrow releases the Bitcoin once confirmed.

Example

You find a seller on Paxful offering 0.1 BTC for $3,100 via PayPal. You send $3,100, the Bitcoin is held in escrow, and once the seller confirms payment, you receive 0.1 BTC.

Pros and Cons

• Pros:
  • Flexible payments (cash, gift cards, etc.).
  • Often cheaper than exchanges due to negotiation.
  • More private (some platforms skip ID checks).
• Cons:
  • Slower than spot trading.
  • Risk of scams (e.g., fake payments).
  • Less liquid for big trades.

Safety tips

• Use escrow services provided by the platform.
• Check the trader’s reputation (ratings/reviews).
• Avoid deals that seem too good to be true.

Derivatives trading

Derivatives let you bet on Bitcoin’s price without owning it. These are contracts tied to Bitcoin’s value, offering advanced strategies like leverage (trading with borrowed funds) and shorting (profiting when prices fall). They’re riskier but powerful.

Here’s a breakdown of the main types: CFDs, futures, perpetual futures, and options.

Bitcoin Contracts for Difference (CFDs)

What are CFDs?

CFDs are agreements with a broker (e.g., eToro or Plus500) to pay or receive the difference in Bitcoin’s price from when you open to when you close a trade. You don’t own Bitcoin; it’s like betting on a horse race without owning the horse.

How do Bitcoin CFDs work?

• Long Position: You “buy” if you think the price will rise. Profit = closing price – opening price.
• Short Position: You “sell” if you think it’ll fall. Profit = opening price – closing price.
• Leverage: Borrow funds to trade bigger (e.g., 10x leverage turns $100 into $1,000 of exposure).
• Settlement: Cash, not Bitcoin, changes hands.

Example

Let’s take, for instance, Bitcoin’s price is at $30,000 and you open a $100 CFD long position with 10x leverage ($1,000 exposure, which would be equivalent to approximately 0.033 BTC). If the price of Bitcoin rises to $31,000, your position (0.033 BTC) will be worth $1,033.33 (0.033 x $31,000).

However, take note that this figure is exaggerated by the 10x leverage, and your actual profit after fees will be somewhere between $30–$33 (profit minus leveraged amount) after fees. If it drops to $29,000, you lose $100 or more with leverage.

Pros and Cons

• Pros:
  • No need to store Bitcoin.
  • Profit from rising or falling prices.
  • Leverage boosts potential gains.
• Cons:
  • Leverage magnifies losses (you could lose more than your deposit).
  • Not available everywhere (e.g., banned for U.S. retail traders).
  • Overnight fees apply for holding positions.

Bitcoin futures trading

What is futures trading?

Futures are contracts to buy or sell Bitcoin at a set price on a future date. They’re common on platforms like CME or Binance, and they are used by traders to lock in prices or speculate.

How does Bitcoin futures trading work?

• Contract: Agree to buy/sell Bitcoin at a fixed price (e.g., $30,000) on a set date (e.g., three months from now).
• Settlement: On the expiry date, settle in cash or Bitcoin, depending on the platform.
• Leverage: Often available, amplifying gains or losses.

Example

Let’s take, for example, Bitcoin is priced at $30,000 and you buy a futures contract for 0.1 BTC at $31,000, expiring in a month. If Bitcoin hits $35,000, you profit $400 (0.1 BTC × [$35,000 – $31,000]). If it’s $29,000, you lose $200.

Pros and Cons

• Pros:
  • Hedge against price changes.
  • Leverage increases potential returns.
  • Standardized and regulated (on some platforms).
• Cons:
  • Complex for newbies.
  • Losses can exceed your deposit with leverage.
  • Must track expiry dates.

Bitcoin perpetual futures

What are perpetual futures?

Perpetual futures are like futures but with no expiration. Offered on crypto exchanges like Binance or Bybit, they let you hold positions as long as you want, with leverage up to 100x.

How does Bitcoin perpetual futures trading work?

• Long/Short: Bet on price going up (long) or down (short).
• Funding Rate: Periodic payments between traders keep the perpetual price close to the spot price.
• Margin: You need enough funds to avoid liquidation (losing your position if the market moves against you).

Example

Let’s take the Bitcoin price is at $30,000 and you go long with $100 at 10x leverage ($1,000 position). If it rises to $31,000, you gain $33.33. If it drops to $29,500, you’re liquidated unless you add more funds.

Pros and Cons

• Pros:
  • No expiry; hold indefinitely.
  • High leverage for big wins.
  • Liquid markets on crypto exchanges.
• Cons:
  • Insanely risky with high leverage.
  • Funding rates can eat into profits.
  • Not beginner-friendly.

Bitcoin options trading

What is options trading?

Options give you the right — but not the obligation — to buy or sell Bitcoin at a set price by a certain date. Available on platforms like Deribit, they’re flexible for speculation or hedging.

How does Bitcoin options trading work?

• Call Option: Right to buy Bitcoin at a “strike price.” Profitable if the price exceeds the strike.
• Put Option: Right to sell Bitcoin at a strike price. Profitable if the price falls below it.
• Premium: Upfront cost to buy the option—your max loss if it expires worthless.

Example

Let’s say Bitcoin is priced at $30,000 and you buy a $31,000 call option for a $100 premium, expiring in a month. If Bitcoin hits $35,000 and you exercise the call option, you buy at $31,000 and sell at $35,000, making a profit of $400 (minus the $100 premium = $300 net profit).

If it stays below $31,000, you lose the $100 premium.

Pros and Cons

• Pros:
  • Risk is limited to the premium.
  • Flexible strategies (speculate or hedge).
  • Profit from volatility.
• Cons:
  • Hard to understand at first.
  • Premiums can be pricey.
  • Less liquid than spot or futures.

Which method should you start with?

• Beginners should stick to spot trading. It’s simple, you own Bitcoin, and there’s no leverage to worry about.
• Experienced traders can try P2P trading for flexibility and direct deals.
• Advanced traders can explore derivatives (starting with CFDs or options with low leverage) —but tread carefully!

What drives Bitcoin’s price?

Bitcoin’s price isn’t random. Here’s what moves it:

• Supply and Demand: With only 21 million Bitcoins possible, demand dictates price. More buyers (e.g., Tesla accepting BTC) = higher prices. Fewer buyers = lower prices. Check wallet growth or exchange inflows for clues.
• News and Media: Headlines matter. A country banning Bitcoin can tank the price; a billionaire endorsing it can spike it. Follow trusted sources like CoinDesk or X posts from crypto influencers.
• Regulations: Laws shape Bitcoin’s fate. A ban in China might crash it; U.S. tax breaks might lift it. Watch global policy shifts — they’re game-changers.
• Tech Updates: Bitcoin upgrades (e.g., Taproot for privacy) boost confidence and prices. Bugs or hacks do the opposite. Stay tuned to developer chatter on GitHub or forums.
• Market Sentiment: Fear or greed drives traders. Tools like the Fear & Greed Index show if people are panicking (buy opportunity?) or euphoric (sell signal?).
• Whales: Big players with thousands of BTC can sway markets. A whale dumping 1,000 BTC might drop prices; a big buy might spark a rally. Blockchain explorers like Glassnode track this.
• Economic Trends: Inflation or stock market crashes push some investors to Bitcoin as a “safe haven,” lifting its price.

How to analyze the price of Bitcoin when trading

To trade well, you need to predict price moves. Here’s how:

Technical analysis

Study charts to spot patterns:

• Support/Resistance: Levels where prices bounce or stall.
• Moving Averages: Smooth out trends (e.g., 50-day MA).
• RSI: Shows if Bitcoin’s overbought (sell?) or oversold (buy?).

Beginner Tip: Use TradingView to practice spotting support levels.

Fundamental analysis

Look at Bitcoin’s “value”:

• Adoption: More merchants using BTC = bullish.
• Network Stats: Rising hash rate = healthy network.

Beginner Tip: Check if big firms buy Bitcoin—it’s a good sign.

Sentiment analysis

Gauge the crowd’s mood:

• Social Media: Buzz on X can signal hype or fear.
• Fear & Greed Index: A quick vibe check.

Beginner Tip: Don’t overreact to hype—cross-check with charts.

How to get started with Bitcoin trading

1. Pick a Platform: Coinbase for spot, Binance for futures, Paxful for P2P.
2. Set Up: Register, verify ID, deposit funds ($50–$100 to start).
3. Trade: Buy Bitcoin (spot) or open a position (derivatives).
4. Secure It: Move Bitcoin to a wallet (e.g., Ledger for cold storage).

Also Read: The safest way to store your cryptocurrency

Frequently Asked Questions (FAQs)