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How does Bitcoin trading differ from investing? Here’s what it means to trade Bitcoin and own this cryptocurrency.
People use Bitcoin to generate wealth in different ways. But, the most common methods of earning money from this cryptocurrency are mining, trading, and investing in it. Mining Bitcoin is a more technical process that people used initially to acquire this cryptocurrency. Bitcoin mining requires knowledge and expertise to set up innovative computing software. Ideally, you have to invest in software to mine Bitcoin. The process was more straightforward initially, but increasing competition has made it more complex.
Consequently, most people opt to invest and trade Bitcoin to make money from it. And people use these terms interchangeably when talking about Bitcoin. When investing in Bitcoin, a person purchases and keeps this cryptocurrency for an extended period. The object is to hold onto this virtual currency, hoping that its value will increase. A Bitcoin investor can, therefore, own this cryptocurrency.
A trader, on the other hand, does not hold onto this cryptocurrency for a long time. Instead, they use platforms like cryptotrader.software to purchase and sell Bitcoin for profit. A Bitcoin trader looks for an opportunity to sell this virtual currency for a profit and then make a move. That’s because their goal is to make a profit from their trading activity.
How Trading Bitcoin Differs from Owning Bitcoin
- Trading Bitcoin entails speculating on the price movement without owning the cryptocurrency.
- Owning Bitcoin means you purchase and own it outright.
- Trading Bitcoin means taking a long or a short position.
- Owning Bitcoin entails taking a long financial place only.
- When you trade Bitcoin, you focus on price swings, regardless of the direction.
- When owning Bitcoin, you purchase, hold, and close on a long position only.
- When trading Bitcoin, you use a long-term or a short-term strategy.
- Owning Bitcoin is about a long-term purchase and hold only.
- Bitcoin trading involves the utilization of leverage and margin to maximize account equity usage.
- Owning Bitcoin requires its total value upfront.
- Bitcoin trading employs stop losses, entry orders, profit-limit orders, and different techniques for managing risk.
- Owning Bitcoin involves the manual purchase or closing of long positions.
Bitcoin trading and ownership differ based on the time you keep this cryptocurrency. When you purchase Bitcoin outright, you can be long-only, and you will have to hold it through the volatile changes in its price.
A Bitcoin trader tries to take advantage of the potential opportunities of the volatility of this cryptocurrency. On the other hand, an investor focuses on the long-term potential of this cryptocurrency. Thus, they buy-and-hold onto this virtual currency hoping to reap significant returns from the money they invest in Bitcoin.
Market Information is Essential
Bitcoin analysts aren’t sure whether the price of this cryptocurrency will continue shooting up or it will drop sharply. But when trading or investing in Bitcoin, you need market information to guide your decisions. That way, you can position yourself depending on the direction the crypto market is likely to take.
For instance, you can opt to trade Bitcoin based on price swings if your goal is to make short-term profits. But if your goal is to earn long-term gains, you can use market price information to determine the right time to purchase Bitcoin and hold onto it, hoping that the value of the cryptocurrency will appreciate.
Leverage and margin are also essential factors to consider when trading or investing in Bitcoin. Depending on the Bitcoin price at any time, owning a single coin can be prohibitively costly. Using leverage to trade Bitcoin can allow you to take your position even with low capital easily. However, high leverage also increases the risk.
Final Thoughts
Active Bitcoin trading enables you to use entry orders, profit-limit orders, stop losses, and risk management approaches that you can’t use when purchasing and owning Bitcoin. Investing in Bitcoin is ideal for people not interested in quick profits and who have a long-term focus.
