Bitcoin is one of the most powerful currencies today, it is just over a decade old and has gained immense popularity and adoption. A lot of people have made an astounding amount of wealth from Bitcoin. Bitcoin is highly volatile, perhaps more volatile than any other traditional currency. This presents a good opportunity for people to trade Bitcoin. This is a guide on how to trade Bitcoin in South Africa.
Overview
Bitcoin was launched in 2009 by an unknown person or group under the name Satoshi Nakamoto. It was set to be a completely decentralized digital currency. This means that no one would have direct authority or power over it, not banks or governments.
The value of Bitcoin started rising in rapidly in 2013 as more people started adopting it and when some businesses accepted it as a form of payment. At some point, the price of Bitcoin was less than R10, it is now worth more than R230 000 at the time of publishing this article.
However, the currency is very volatile, the actual value of the currency fluctuates so much on any given day. This volatility allows traders to cash in by buying or shorting Bitcoin. Trading Bitcoin is different from investing in Bitcoin, investors are in it for the long term. They buy Bitcoin and Hodl (hold) for the long term, they don’t pay attention to the daily fluctuation in value. Traders take advantage of the fluctuations, they buy low and sell high and sometimes they short Bitcoin, meaning that they predict that the value of Bitcoin will drop.
Trading Bitcoin through CFDs doesn’t require you to have any Bitcoin wallet or own any Bitcoins. You are just purely speculating whether the value will rise or fall and if things go according to your predictions; you make money.
Different types of Bitcoin traders
There are different strategies that are employed by different traders. These are mostly a way to approach trading. These strategies are mainly day trading, trend trading and Hodling. Hodling is a term that came out of a spelling in a Bitcoin forum.
Day traders
Day trading means that all your trades will be opened and closed within one single day. At any given minute; there are movements in the price of Bitcoin, day traders trade these movements during the day. One main advantage to day trading is that you don’t incur overnight charges.
Trend traders
Trend traders trade the overall trend of any given currency. If the trend seems to suggest that the price of Bitcoin is going up then they will buy, if the trend suggest that the price of Bitcoin is going down, they will sell. Trend traders typically wait until the trend is over before they exit the trader. Some trends may go over night, incurring charges for the traders.
Hodlers
Hodling is when traders buy Bitcoin for the long term, it is not really used that much in trading. You have to buy the actual Bitcoin so that you can sell it at a later stage when the price has gone up.
How do you predict the price of Bitcoin?
No one can really certainly predict the price of Bitcoin; however, some traders have identified patterns and strategies that make it easy for them to speculate. People follow two main methodologies when it comes to trading Bitcoin or anything for that matter. These are fundamental analysis and technical analysis.
Fundamental analysis
Fundamental analysis looks at the whole system of Bitcoin and where it’s headed. This technique looks at all the news and regulations that are related to Bitcoin, they decide based on news if the value of the currency will go up or down. If for example, strong countries like USA ban Bitcoin, it will likely lose value. Similarly, if the biggest companies in the world start adopting Bitcoin; it will likely go up in value.
Technical analysis
Technical analysis looks at the actual day to day price of Bitcoin and the its history. It looks at the previous patterns and tries to predict whether the price will go up or down by looking at the patterns. These are the green and red graphs that you often see on a lot of movies about trading.
Which of the two is better? Most people use technical analysis, technical analysis is a huge subject that you need to research before even starting to trade. However, it’s always good to implement both strategies to be on the safe side.
How to trade Bitcoin?
The first important thing is to learn what trading is, there are different resources online like Baby Pips for learning. These resources are mostly free and contain a wealth of knowledge, after knowing how to trade you should proceed to opening a trading account with a reputable broker like XM.
It’s important to understand that you can lose money while trading Bitcoin. Which is why it’s so important to learn how trading works.
Conclusion
This was a guide on how to trade Bitcoin in South Africa. I encourage you to learn how trading works, learn the whole process from sites like Baby Pips. Do you have any thoughts or questions? Comment below.
