Bitcoin trading is buying this cryptocurrency and then speculating its price. Once you see a spike in the price or value, you sell it. In simple terms, its buying and selling of bitcoins. Bitcoin trading has given a new dimension to conventional trading due to its volatility. The kind of volatility that it experiences creates the possibilities for high-profits for the investors.
The main aim of bitcoin trading is to capitalize on this volatility. When you buy bitcoins at a low value, you pay less fiat currency. But as the value increases, you get a higher fiat currency in exchange.
What Do You Need To Start Trading?
You will need two things to start bitcoin trading:
- A cryptocurrency wallet
- A crypto exchange that would allow you to buy, sell, or trade bitcoin.
Trading in bitcoins typically starts with buying it using fiat currency. Fiat refers to your national currency. So, you can use your dollars to buy bitcoin. This type of trade is supported by most of the exchanges you will find online.
Once you have some bitcoins with you, you can start exchanging them with other cryptocurrencies such as Ethereum or Ripple. The transactions happen in abbreviated forms, so you have to be very careful while doing it. For example, BTC for bitcoin or ETH for Ethereum.
Some basic terms explained:
Blockchain
It is a shared public ledger that holds the entire bitcoin network. It is like a vast database that contains information in blocks. Each block has a storage capacity, and when it’s full, another block is automatically chained to it. All the transactions which are confirmed will move to the blockchain through a peer-to-peer network. This technology is decentralized, and all the transactions are cleared through it. So, there is no need to have a clearing authority to confirm the transactions.
Transaction keys
A transaction happens when there is a transfer of values between bitcoin wallets included in the blockchain system. Your bitcoin wallets will have a secret private key that is used for signing the transactions. It validates that you have made the transaction and prevents anyone from altering your transaction. Usually, a transaction confirms within an hour through the mining process.
Mining
It is the process of confirming new bitcoin transactions and including them into the blockchain. It is a complex record-keeping process that is executed through widely distributed computing networks. The transaction data gets confirmation only if it’s in blocks adhering to the cryptographic rules. It helps to maintain the integrity of the blocks and prevent any modifications. A Bitcoin miner works to maintain the trustworthiness and security of this decentralized peer-to-peer network.
How Does Bitcoin Trading Work?
Bitcoin transactions are a complex phenomenon that involves a lot of steps behind the scene. The bitcoin wallet and network go through a systematic process to ensure the bitcoin reaches the right recipient. Bitcoin, as you might confuse, is not a coin in actual definition. It refers to a file with a value. Only when you initiate a payment, it registers as a transaction.
There are three elements to it: a transaction input, a transaction output, and an amount. Your wallet is your bitcoin address. The address gets generated once you install a wallet in your laptop or mobile. You send the money from the transaction input to the transaction output. Let’s understand it this way.
Every bitcoin you send must have been sent to you by someone else by using a unique wallet address registered on the blockchain network as transaction input. This network is an encrypted and inaccessible register that keeps all the records. When you are the recipient, your address gets registered as transaction output on the blockchain.
Now, when you send the same bitcoin to someone else, your wallet address will create a transaction output, the receiver’s address. And, your address will be registered as the transaction input. This same process will follow every time you sell or buy bitcoins.
Where Does The Trading Take Place?
Bitcoin trading occurs on regulated crypto exchange platforms. However, in some areas, traditional exchanges are also incorporating bitcoin trading. Just like forex trading, bitcoin trading also takes place 24*7 across the globe. The crypto exchanges create a marketplace for the buying, selling and trading of the bitcoin.
Crypto platforms can support crypto to fiat trade, crypto to crypto and even both types of trading. However, cross-check this before choosing any platform as not all platforms support all kinds of trading. The exchanges pair buyers to the sellers allowing for a seamless trading process. For this, they can charge a small amount as a fee.