How to Bet on the Price of Bitcoin and Other Cryptocurrencies

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How to Bet on the Price of Bitcoin and Other Cryptocurrencies

Compared to wall street, the cryptocurrency market is a rollercoaster. That means there is more of an opportunity for profit, but at the same time it also means riskier positions. If you think you’re ready to start trading, here is how you can do it.

Step 1: What is Longing and Shorting?

Here’s the short answer if you don’t care about all the technicalities: Longing means that you’re placing a bet that a certain asset will go up in price. The higher the price goes, the more you will receive when you ‘exit’ your long position. Shorting is the opposite, you’re betting that the price of an asset will go down.

For a more in-depth look at longing and shorting, watch this video:

Although this video talks specifically about the stock market, the same principles can also be applied to cryptocurrency trading. Longing and Shorting is considered “margin trading” because you need to borrow from people who hold the currency that you want to buy (long) or sell (short) and then pay them back when you exit your position. Users will earn interest for loaning coins. Most exchanges that offer margin trading have user lending built in to make the process as seamless as possible.

Step 2: Buying Bitcoin

To be able to bet on the price of any cryptocurrency, you’re most likely going to need bitcoin to start off with. If you already have bitcoin or know how to obtain it, you can skip this step.

There are several different ways to buy Bitcoin. The most easy way if you live in the US is to sign up at either Gemini, Coinbase, Circle, Celery etc. There you can link your bank account and easily have bitcoin in a few business days. These websites may work for other countries as well.

If you don’t live in the US or don’t have a bank account, there are alternatives. You can look for an exchange that supports your country. ExchangeWar is a good website that lists many exchanges and the fiat currencies they support. You can also use Paxful or Localbitcoins to buy bitcoin directly from other users using various payment methods.

Step 3: Choosing a Margin Trading Exchange

Once you have bitcoin in your exchange wallet or personal wallet, it’s time to choose another exchange that supports margin trading. If your initial exchange supports margin trading, then you don’t have to send your bitcoin anywhere.

Here is a short list of exchanges that offer margin trading and lending.

Exchange Coins Margin Trading Lending
Bitfinex Bitcoin + Some Altcoins Yes Yes
Poloniex Bitcoin+Altcoins Yes Yes
Kraken Bitcoin + Some Altcoins Yes Unknown
OkCoin Bitcoin + Some Altcoins Yes Yes

Sign up and find the deposit option on your margin trading exchange and send your bitcoin to the bitcoin address that they provide.

Step 4: Placing Orders

Once you have bitcoin on your margin trading exchange, you can now place orders and essentially “bet” on the price of cryptocurrencies. If you feel like the price of a cryptocurrency will go up, place a long order. If you feel it will go down, place a short order. Then exit your position once you feel there is no more room for profit. Of course, you won’t always win. Be prepared to lose in some situations, especially if you’re new to this. After you exit a position, you will have either more or less bitcoin, depending on the success of your trade.

Step 5: Cashing out

This step is optional. If you want to keep your wealth in bitcoin (which is what I recommend), then you are welcome to do that. If you want to convert your money back into fiat, then you can send your bitcoin back to the first exchange that you used to buy bitcoin and sell it. If you used a bank account to buy your bitcoin, then you will have an option to send fiat currency back to your bank account.

That’s it for this simple beginners guide. Let me know if I missed anything and I’ll edit this post.

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