How to Daytrade Bitcoin

Bitcoin is a decentralized digital curreny that has become a popular trading instrument over the last 2 years.

In this article I will cover two things:

  • Where and how to day trade Bitcoin?

  • Is Bitcoin suitable for daytrading?

Bitcoin vs US Dollar or BTC/USDT (Tether) derivatives are a very volatile trading instrument, that exists since 2013.

In this article we’re focusing only on BTC vs US Dollar

Which derivative for day trading Bitcoin?

First, let’s clarify that CFD’s are a bad product for day trading Bitcoin. The spread is simply too high. It looks something like this.

 

Daytade Bitcoin Spread

 

The CME has a Bitcoin Future. I’ve tested it and here lies the problem in the, by now, missing liquidity.

So what is left are the exchanges, that began operation early when Bitcoin was not even mainstream. These exchanges have the most costumers. A dosed portion of leverage is need for day trading. So let’s look at the bigges exchanges, that offer margin trading.

And let’s analyze volume on these exchanges.

 

Any of these exchanges has advantages and disadvantages.

Comparison

As you can see the top margin trading providers are Bitmex, OKex and Bitfinex. Choosing one of these thre we can be sure of good liquidity (ability to buy and sell at any time without price gaps) as the date of this article.

Bitmex

Bitmex has a real futures contract. How exactly it works and differs from EUREX or CME products is well documented here. They have a unique system called Fair Price Marking, which I recommend you to play around with order entries and understanding the mark price mechanism first before depositing real Bitcoin.

 

Daytrade Bitcoin Bitmex

 

Remember none of the exchanges are decentralized and all that has to happen is some scandal and all your Bitcoin are gone. You only own your Bitcoin when you have the private key!

For Bitmex, the main disadvantage is that you are exposed to the Bitcoin Price fluctuations, meaning that your account $ value can go up/down 20% in a matter of months, allthough Bitcoin’s volatility is decreasing.

OKEx

Compared to Bitmex the security of funds is not in the Seychelles, it is in China, where regulatory issues occur frequently. OKEx as part of OKCoin is solid platform, because OKCoin has set standards for Chinese Exchanges. They also offer a standalone desktop platform.

Bitfinex

Bitfinex is good when you are a US customer, because they have the advantage to directly being able to deposit real US$. The company has lost a bit of reputation due to a hack. But as far as I’ve experienced, Bitfinex never had been too much issues for me and the customer service was outstanding.

Is Bitcoin suitable for day trading?

I am trading the FDAX for over 7 years now and any leverage use over 1:20 is quite suicidal. The Dax has a standard deviation of about 1% on its close-close returns over the last 2 years, compared to a 5% standard deviation for bitcoin.

 

Daytrade Bitcoin Volatility

 

What this basically means is that anything over 1:4 leverage is suicidal for trading BTC/USD. Especially Bitmex can be very dangerous to your hard earned money because it lures you into using too much leverage and overtrade, which is then computed by high frequency algorithms somewhere in Hong Kong to take away your money one bit at a time.

Summary

Bitcoin is an interesting underlying going into the future. The Future on the CME is still untradeable for day traders and the exchanges have had some scandals in the past. Who does not shy away from the risks involved can put foot on the ground of Bitcoin Margin Trading. Because of the high volatility one should be careful using more than 1:5 leverage.

As for all markets I strongly recommend specializing in one to become the Master of It, Bitcoin trading is no different. If you want to emerge in this new market environment, then fully do it whole-hearted without any excuses!

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