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How To Make Money Trading Bitcoins?

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  • How To Make Money Trading Bitcoins?

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    It is totally possible to make money trading bitcoins whether you are an amateur or a professional. The bitcoin market is highly fragmented and the options for arbitrage and margin trading are widely available. Bitcoin's history of volatility and bubbles has pulled in more users and investors than any other cryptocurrency.


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    How To Make Money Trading Bitcoins?

    LocalBitcoins.com
    LocalBitcoin is a peer-to-peer exchange for buying and selling Bitcoins. It provides escrow services for safer transactions and it has been operating since 2010 from Finland. There is a very good chance that you will be able to find a Bitcoin buyer or a seller in your country as it operates from 248 countries around the world.

    You can deal with a buyer or a seller directly and trade only if you are happy with the terms of trade. You can receive your fiat money through PayPal, Payoneer, Bank Deposit, Cash or some other method. LocalBitcoins holds the Bitcoins in escrow and releases them only once you confirm.

    You can look at the feedback score and the number of confirmed trades before you trust the trader on Localbitcoin. You can also find reviews of previous sellers in the feedback section.

    Unlike LocalBitcoins, which is a peer-to-peer exchange, there are a number of cryptocurrency exchanges where you can trade in cryptocurrencies. You don't deal with the buyers or sellers directly but trade cryptocurrencies just like stock trading.


    Cryptocurrency Exchanges

    Coinbase - Coinbase is a platform to trade in cryptocurrencies. It is a GDAX(Global Digital Asset Exchange) where you can buy and sell bitcoins or other cryptocurrencies in a secure way. Coinbase also provides a cryptocurrency wallet to let you store your digital assets.

    You can link your bank account or credit card with your Coinbase account to start trading. It charges 1.5% for a bank account transaction and 4% if you want to buy bitcoins with a credit card.


    Gemini - Gemini also works almost like Coinbase and it also offers you a bitcoin wallet. It does not charge anything for the bank transactions but they impose daily and monthly limits.


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    Arbitrage

    If you have some extra cash or BTC, you can try Bitcoin arbitrage. Bitcoin arbitrage allows you to earn money but it also involves some risks.
    An Instance Of Bitcoin Arbitrage:
    The price of Bitcoin at Coinbase is $4,000 and if you sell Bitcoins for $4,200 at LocalBitcoins, the difference, i.e., $200 per Bitcoin is your profit. The actual process is not that simple but it is not too complex either.


    Obstacles To Bitcoin Arbitrage

    - Buying and selling bitcoins involves verification of transactions that can take some time. Bitcoin market is highly volatile and the rate might fluctuate within the timeframe.

    - Depositing fiat currency can also take time especially if the amount is big.

    - Exchanges involve fees that can cut down your margin. It is very important for you to take fees into consideration while arbitraging.

    - It is very important to keep an eye on the transaction volume as you may not be able to sell all the Bitcoins when you want.


    Streamline Trading

    You need to be aware of the Bitcoin price differences at various exchanges and grab the arbitraging opportunities you find. One of the biggest challenges with arbitraging is the time it takes to complete bank transactions.

    To skip the above time taking steps and streamlining the process, you will need extra funds floating in each exchange. The floating funds will allow you to take instant decisions and make profits quickly.

    If the opportunity you find is big enough, you will have enough liquidity to complete instant trades. You will be able to complete instant trades while paying the fees on both sides and do larger trades.



    Types of Bitcoin Arbitrage
    Bitcoin To Fiat Currency - You can profit from this kind of arbitrage when the price of Bitcoin is higher on one exchange as compared to another one. These kind of opportunities are more common than you expect. [*=1]Bitcoin To Other Cryptocurrencies - The arbitrage for Bitcoin to other cryptocurrencies works in a similar way as it works for Bitcoin to fiat currency. For e.g., If you can buy 10 ETH for 1 BTC on one exchange and sell it for 10.5 ETH on another exchange, you will earn a profit of 0.5 ETH through arbitrage.


    Basic Steps For Exploiting The Bitcoin Arbitrage
    - Preparation
    First of all, you need to streamline the process to minimize the impact of the time delay. By keeping the combination of fiat and Bitcoins on the exchanges you prefer, you can make instant buying and selling decisions. Be prepared to pay the network, deposit and withdrawal fees.

    If you choose to buy Bitcoins on an exchange and send it to a different exchange to sell it, it will cost you time as well as a transaction fee.


    - Searching For Opportunities
    You should know where to look to grab the arbitrage opportunities. Compare the prices of Bitcoins on different exchanges and start looking for arbitrage opportunities.


    - Understanding The Costs
    Arbitrage looks easier but without understanding the costs, you can never understand become a successful Bitcoin arbitrage trader. After you take all the costs into account, you also need to look at the time it takes in the verification of transactions.

    For instance, if you buy a BTC at a rate of $4000 and sell it for $4,200 on a different exchange. Even after cutting the costs, you're saving $160 on the deal. However, if your buying transaction completes but the selling transaction fails, you will be left with the BTC and if the price drops, you will have to hold it.

    Nothing like this happens most of the time and all the transactions go smoothly even though they take some time. However, there is a slight possibility for something like this to happen if you are buying and selling very large sums of Bitcoins. In that case, be prepared to hold the Bitcoins that you have.


    - Test The Waters First
    First of all, you need to test the water before you start trading a large number of Bitcoins. As you gain some experience over a period of time and begin to understand how it works, you can trade larger amounts.



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    To Sum Up...

    For successful Bitcoin arbitrage trading, you need to compare its prices at different exchanges. Buy at an exchange where it is priced lower and sell it at an exchange where it is priced higher. Understand the costs and streamline the process. Test the waters before trading large amounts of Bitcoins.

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