Options Trading
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What is Bitcoin Options Trading?
Options are financial derivatives where you have the option of buying or selling Bitcoin somewhere in the future. You are not obliged to either buy or sell if the desired outcome is not matching or not according to your prediction.
Suppose you enter a Bitcoin Options Trading, having a strike price of $1500, and the contract premium is $100, and you have entered into a three-month contract. There are two outcomes.
Pros and cons of Bitcoin
Pros of Trading Bitcoin
Cons of Bitcoin Trading
What time does the Bitcoin option expire?
Traders must decide on the duration of holding and the price of the crypto while entering the market. This is called a contract. A contract has two components: “strike price,” the specific price at which the investor or the user enters the market, and the duration and time till the contract is valid. At the end of the duration, the contract expires.Contracts can expire in one-day, two-day, weekly, bi-weekly, monthly, quarterly, and bi-quarterly time frames.
For example, if you enter into a contract of $100 for six months, the strike price would be $100, and the duration is six months. At the end of six months, the contract expires.
How to trade bitcoin options using foreign exchange?
Generally, in two ways, a trader can use Bitcoin Options Trading to enter the forex market:
Like conventional forex currency pairs, Bitcoin can be traded like any other fiat currency pair, i.e. Bitcoin can be paired with a dollar like BTC/USD. Deals for buying and selling and stop-loss and take-profit orders are made in the same way.However, Bitcoin is quite different from traditional currencies since it has intrinsic features and has been in the market for a significantly short time.
Unlike fiat currencies which are subjected to uncertain supply originating from the central bank, Bitcoins are created by mining operations. Therefore, they have a controlled supply that cannot be altered, avoiding the possibility of a sudden increase or decrease in the valuation of Bitcoin.Bitcoin’s total supply is limited to 21 million. Its value is subject to the fundamentals of the crypto market; thus, the valuation is not dependent on a specific country, economy, or even the central bank. Unlike other currencies dependent on central banks, any shift in the monetary policy can affect these currencies.
Even though many brokers develop new contracts allowing investors to purchase Bitcoin on margin, such contracts are currently limited as Bitcoin Trading Options is surrounded by a small number of derivatives and other paper contracts. On the other hand, currency traders are at an advantage due to the availability of many over-the-counter (OTC) contracts, thus increasing their leverage by employing a broad list of contracts.Finally, the most distinguishable factor is liquidity. Bitcoin has a mere market cap of $650 billion, while that of forex is $6 trillion. Thus the forex market is more liquid than the market for Bitcoin. Moreover, crypto is also subjected to high volatility.
Features and benefits of the Bitcoin options
There is no need for you to engage with options if you think the price will continue to rise after buying Bitcoin. However, Bitcoin Trading Options have various benefits for traders.Small risks with large profits. Options allow you to speculate on the future value of Bitcoin with minimum capital required. Thus with a small amount of investments, you have the potential to make a huge profit.
For example, with a premium of 10%, you can buy Bitcoin options, effectively, you are risking 10 times the amount you have invested.
The potential for profits is virtually limitless
There is virtually no limit to how much profit one can make. For example, suppose you buy at a strike price of $10,000.So you make a profit of $5,000 if the option closes at $5,000, and if it closes at $20,000, you make a profit of $10,000. Put options profits, on the other hand, are limited because Bitcoin’s maximum price is $0.
Holding for an extended period and selling Bitcoin without paying hefty fees
Shorting Bitcoin means that you will sell off the digital currency as you think its price will go down. You could have made good money if you had entered the crypto market during the crypto-craze in 2017.Even so, retail clients can only sell Bitcoin through CFDs. Moreover, since CFDs are leveraged financial products, one has to pay overnight fees, which means you need to pay for each day to keep your position open.
CFDs in crypto are very likely to eat through your potential gains faster, thus making your long-term short trades unprofitable.This is where the Bitcoin “put” option comes into play. All you need to do to access the market is pay the Premium. Thus you can short Bitcoin without the worry of overnight financing fees. So effectively, it reduces your trading fees while enabling you to make a huge profit.
Great way to reduce your risks
The seasoned traders use hedging to reduce the risk. For example, suppose the cryptocurrency market is due for a correction. You hold a large amount of Bitcoin in your portfolio, enjoying great returns. Instead of selling off your Bitcoin, you want to make money by taking advantage of the market.Rather than selling your Bitcoin, you decide to exercise the put option and make most of it. Thus at a reduced price (since you are required to pay only for the premium and not the entire price) you have the opportunity to make more money.
How to buy and sell Bitcoin
Once you have set up your account with the crypto exchange and have brought cryptos as per your needs, the process of buying and selling of Bitcoin will depend upon the exchange you have chosen.Some exchanges simply have a “buy” and “sell” button specifying how much currency you wish to buy or sell-off. Others need you to place an order similar to what would be placed on a traditional stock exchange. However, there are three types of orders that most crypto exchanges allow you to tap into for buying and selling Bitcoin.
Some exchanges still have a few more options to offer, like most order variety, stop-loss, and take-profit orders, which are advanced options. Therefore, though the above mentioned orders are basic, it is advisable to start with the basics and then jump into more options offered by your exchange, as per your needs.As cryptocurrencies are evolving and being accepted by the masses, the crypto exchanges, too, have evolved. One can even say that they are at par with the traditional stock exchange. Some even exhibit recurring investment options that allow you to invest daily, weekly, or monthly.
How to Invest in Bitcoin Futures?
Before you start, you need to sign up with Blockchain Tradein and confirm that you wish to initiate the trade. For bitcoin futures trading (/BTC) S.M., CME Group (CME) and CME Group (CME) micro bitcoin futures trading (/MBT) S.M., you must have specific qualifications and permissions on your account, including
Before you trade any futures contracts, including bitcoin futures, you must have all of your funds cleared in your account. Deposits made through ACH and Express Funding can take up to four business days, while wire transfer gets cleared on the same business day.While futures products still come with their own set of risks, they offer a more regulated and stable way to gain exposure to bitcoin as a commodity. However, considering your experience, ambitions, financial resources, and other relevant circumstances, you should carefully assess whether investing in bitcoin futures is suitable.
Follow these five tips to ensure that you carry out a safe trade:
Developing your trading personality
Searching for an effective methodology will ensure that you maximize your profits while lowering the risks. Once you hone the strategy, you just have to keep on replicating it. However, this methodology must be personalized, reflecting your investment plans, risk tolerance, lifestyle, and long-term goals.If certain things don’t work for you, then adjust your plan, and be flexible.
Develop a trading plan
When you have a plan to approach the crypto market, things become effortless for you. You are less likely to make mistakes and are not easily persuaded by any distractions. While planning, here are a few things that must be considered, such as how you would enter the market and exit it, the entry and exit indicators, position-sizing, and stop-loss placements.
There are numerous advantages of having a trading plan/strategy. It includes reduced stress or anxiety related to trading and assistance in missing out on fewer trade opportunities. However, traders must become more mindful of their trading practices to make highly targeted advancements and treat trading seriously.
Proper management of risk
This is one of the most important aspects while trading. You must be prepared for what you deem acceptable or unacceptable to lose in a trade.Each dollar should be treated 100 times its original amount when trading futures. For example, suppose your account is worth $1,000, then losing $10 should be considered extremely risky.
You should approach each trade with a clear strategy if you want to keep a long-term view. Your account will build adequately if you keep on winning in a small dose over time. Managing risk can help you protect your investment. Keep a view of realistic expectations while avoiding emotions when you trade.
Carry out trade with responsibility
Trading compulsively with emotions is the two gambling forms that can end a prospective trader’s career. However, there are ways to mitigate these behaviors by minimizing leverage, reducing the amount of trades executed in a given period, defining cautious goals and targets, and never trading with money you can’t afford to lose.
When you make a loss, stop trading and analyze where you went wrong and the next day, approach the market with the same vigor. When you book a profit, take a break, don’t try to keep on trading, extending your “lucky runs.” Try to analyze what went right and replicate the same analysis to mitigate losses and book profit. This is a healthy way of not committing mistakes.
Continuing your learning curve
Bitcoin or any other cryptocurrencies, in general, are a new asset class that is popularly discussed in the public domain. So the developers of cryptocurrencies are continuously making improvements. This is exciting as the industry is constantly evolving, presenting new trading opportunities like reduction of transaction or gas fees To maintain the edge of success, it is necessary to improve your trading skills and keep yourself updated with the latest crypto news. The more knowledge you have, the better it will serve and help plan your trade.
Please keep in mind that virtual money is a digital representation of value that can be used as a means of exchange, a unit of account, or a value store. Still, it does not have legal tender status.Virtual currencies are sometimes exchanged for U.S. dollars or other currencies worldwide, but they are not currently backed nor supported by any government or central bank. Market forces of supply and demand derive their value entirely, and they are more volatile than traditional fiat currencies. Margined futures contracts magnify the profits and losses associated with this volatility.
How does bitcoin mining work?
Bitcoin is quite different from centralized physical banks. Bitcoin is a decentralized banking ledger where transaction records are kept encrypted in multiple locations by the contributors of the network. That record is called a blockchain. The blockchain is updated by the addition of new data blocks to that chain containing information about Bitcoin’s processed transactions.The contributors add the blocks by computing and solving a complex equation generated on the blockchain system. There are a set of rules that one must abide by, and the ones who solve these complex equations are awarded in Bitcoin. Such a process is called Bitcoin mining.
The miners use expensive and complex mining rigs to carry out this complicated equation. Bitcoin mining is not as simple as you perceive. If you have a fast processor, it takes less time to compute complex algorithms and solve the equation. However, there is a catch: the first miner to solve the complex equation is the one to be awarded.Once the miner solves the equation, a group of transactions or blocks are added to the ledger. The miner attains new Bitcoins and any fees incurred against the blocks gets added to the ledger. It is a never-ending process as once the equation gets solved, a new equation is generated, and the entire process gets repeated.
The mining rigs mentioned above are the tools for the Bitcoin miner to mint a new Bitcoin. The mining rig comprises personal computers, such as motherboard, CUP, GUP, Storage, RAM, and power supply. Miners are in a constant quest to own Bitcoin by mining. Initially, miners used their personal computers. Now miners are pooling their resources and are constantly upgrading their system to maximize the chances of getting rewarded. During the pandemic, the graphics card price surged as there was a scarcity of it due to lockdown, thus boosting the secondary market.
These mining operations use a lot of power, and thus it is expensive to mine Bitcoin. Another catch is that Bitcoin was designed to become complex with more and more miners joining the tribe. For every 210,000 blocks added to the blockchain, the reward rate gets cut in half. Thus every four years, the reward gets halved.Bitcoin is based on a theory that only 21 million units would ever exist. To date, the total units minted are roughly 18 million. Since the rewards are getting halved, it is getting difficult to mint as even new miners are joining in the quest of getting rewarded. By 2140, the entire stock of Bitcoin will get minted.
Is Bitcoin mining profitable?
The golden age of bitcoin mining was back in 2009 when miners utilized personal computers and landed profits for various reasons. The cost to get started and operate as a miner was close to zero since they functioned on an owned setup without additional equipment. The operators could pump up productivity and proceed stress-free with a few changes in the computer setting. It was the peak when giant Bitcoin mining centers brought in their competitive power to the industry. On the other hand, small scale operators tapped in from their computer systems fixated at home and competed with other miners playing small. It was a healthy competition despite the varying electric expenses across geographical boundaries.
But everything shifted after ASICs entered the market. Individual miners were exposed to huge mining rigs with massive power. The expenses scaled up against equipment charges and energy bills alongside enhanced difficulty in mining. For certain miners, Bitcoin mining can still turn profitable. With the demand and surge noticed in this sector, all the equipment needed for mining are made easily attainable.Despite the complexities within the market, many miners took this as a challenge and considered it a worthwhile investment. For example, in November 2021, 6.25 Bitcoins were awarded for mining a block. As a result, a single Bitcoin was worth $50,000, implying a return of around $400,000 for one block, depending on the conversion rate.
Benefits and Risks of trading forex with bitcoin
There are many benefits of trading Bitcoin in Forex markets. Simply put, trading forex with bitcoins gives you access to bitcoin’s inherent advantages. The following are some of the most notable advantages:
Benefits
Risks
Every trading asset comes with its likable benefits and daunting risks. Bitcoin traded within a forex market has its own drawbacks. Here is a list of risks that one should know before entering the unknown realm.
Frequently Asked Questions
How can I fund my account?
There are many ways to fund your crypto account.
- Sending crypto through an external wallet or exchange
- Transferring your crypto from your account to an external wallet or different account.
- Withdraw cryptocurrency
Can I renew my demo account?
Some exchanges will allow up to 30 days of a free trial, and after 30 days, even if you enter your login credentials, you won’t get access to it.
While some, after a 30 days trial, will allow using the free demo only after buying their live trading account. Thus it solely depends upon the crypto exchange.
How can I access my monthly/annual statement?
All the completed transactions, your withdrawals, and deposits can be viewed on the portfolio tab found in the top-right side corner. Selecting the respective tab will allow you to view your history and pending deposits and withdrawals.
Can someone else trade on my account?
As per the company policy, unless the trader has been evaluated and approved as a Money Manager, no one other than the account holder(s) can access or trade on the account.
How do I create a watch list?
To make a new watchlist, go to the top of the screen and look for the plus sign at the end of the list of existing watchlists. A pop-up will appear; you can name the new watchlist with the desired name and select Create. You can add Markets through the Market Search tab once the watchlist has been created. You can select the watchlist of your choice by clicking on the “Add to” option by simply swiping on your desired market. You have the freedom to create as many watchlists as you wish for. You can switch between different “Watchlists” by selecting the tab and viewing each one.
How do I see individual positions?
If you have more than one trade in the same market, the trades are grouped in a single panel in the Portfolio window. You can view each constituent position individually by tapping on the section that displays the quantity of deals you have in that market. It will collapse, revealing each trade separately. Furthermore, you can toggle this view on or off by using the stack button in the upper right corner.
Why am I unable to view my position on the chart?
If you have an open position or order in a particular market and view a chart for the same market, then there are special lines representing your position or order. Make sure that you have not zoomed in too close on the chart. Additionally, try to enlarge the time frame so that the level of your position is viewable. Finally, make sure that in Chart Settings, the Show Position has both full-screen and simple chart view enabled.
How do I download statements?
You can access your statements by clicking on the ‘More option’ at the bottom and locating your “Statements” under ‘My Trading History’. Select view statements and date range when the new window pop-up. Then click on Search, and all the available statements within the time frame specified will be generated.
How can I adjust price tolerance as my trade gets rejected due to it?
Swipe on any market in the ‘Markets’ or ‘Watchlists’ tabs and tap ‘More.’ Now select ‘Market Information’ after scrolling down to ‘Preferences,’ then use the selector to update your price tolerance.
Alternatively, you can also update your price tolerance by tapping a market to open its detailed page. Then, scroll down to settings and alter your price tolerance by selecting the ‘INFO’ option.
What is the purpose of providing my financial information while opening up an account?
Along with personal information, we at BlockchainTradin also request financial and tax identification information to comply with Commodity Futures Trading Commission (CFTC) rules and U.S. government laws. We have requested personal information and financial information from both new and existing customers. In addition, BlockchainTradin complies with the rules of customer identification of the USA Patriot Act of 2001. As per this rule, BlockchainTradin needs to collect the client’s data and maintain their information. Thus, we must request your financial statements like bank accounts or card statements.
What is the minimum amount required to open up an account?
You can open up an account for a minimum of $100. However, we recommend depositing at least $2,500 to provide you greater freedom and control over the risk while trading on your account.
How would I come to know when my account gets activated?
We will send an email to confirm that your account is now activated and you are now free to trade. However, you can also try logging on to your account to check the status.
How do I open an additional account?
You can request an additional account by logging in to My Account, going to Account Settings, and selecting Add New Account.
What are the steps in a basic bitcoin transaction?
Documents that can be used to verify your identity include, but are not limited to:
- Your current passport
- Your current driver’s license
- National I.D.s. Depending upon the scenario, other types of I.D.s are also acceptable.
What is Bitcoin?
Bitcoin is a peer-to-peer electronic monetary system not regulated by a government or central bank, but cryptographically safeguarded. The security and protection of transactions are overlooked with blockchain technology’s verification mechanism.
Can bitcoin be shorted?
Of course, Bitcoin can be shorted by betting its inherent price volatility against derivatives like futures and options. However, it must be remembered that there are many risks associated with shorting.
What are the most common methods for shorting Bitcoin prices?
There are plenty of ways to short Bitcoin and book a profit. Here are some of the most prominent sorting methods;
Shorting against the;
- Binary options Trading
- Margin Trading
- Predictions Market
- Futures Market
- Bitcoin CFDs
- Short-Selling Bitcoin Assets
- Inverse ETFs
Can I short Bitcoin using leverage?
Many cryptocurrency exchanges allow users to gamble on Bitcoin’s plunging prices using leverage or borrowed funds. However, you should be cautious while exercising this option, as both profits or losses can be magnified using leverage. Thus the risk is proportionally greater while using leverage.
