How to Trade Bitcoin on the Exchanges

Bitcoin is available to trade on many exchanges worldwide.  Coinbase and GDAX are affiliated and are the most widely used in the U.S.  GDAX, Coinbase, Gemeni, Kraken and Bitstamp are just a few exchanges that allow conversion of Bitcoin into US dollars directly.  

Some exchanges will only convert into local currencies or other cryptocurrencies.  It is fairly simple to trade on a single exchange, although quite expensive.  Typically, trading fees are running around .25% of the value which for one Bitcoin would equal approximately $45.  Larger volume brings the fee down slightly, while GDAX is no charge if adding liquidity.  

Arbitrage

Different exchanges can have vastly different prices for extended periods, as you might see prices for trading Bitcoin at $17,000 on one exchange and $16,000 on a different exchange.  This seems like easy arbitrage, but it is not easy in practice.  There are only a few select exchanges that allow Bitcoin to be shorted, if the higher price isn’t on one of them, you would have to move Bitcoin there to sell it.  During this time, which can take anywhere from thirty minutes to several hours depending on how overwhelmed the Bitcoin network is, you would be exposed to all of the swings in price of Bitcoin.

You also must have cash to buy Bitcoin at the lower priced exchange, which is not very easy when the exchange will not accept cash deposits but only take cryptocurrency such as Binance, take days to verify bank deposits, charge an outrageous fee for transfers or maybe they just do not allow any customers from the U.S. such as Bitifinex.  

Hacking is a Real Risk with Bitcoin

The Blockchain technology provides an anonymity that makes it virtually impossible to trace any coins that may be stolen.  Your coins and cash are out of your control when they are in the hands of the exchange, this is not a worry when trading stock with your balance with a trusted broker.  

Crypto exchanges are open to the real threat of hacking, however, and you may lose your coins.  This has already happened, with sever exchanges having been hacked since 2012:

• 2012 at BitFloor
• 2014 at Mt. Gox
• 2015 at BitStamp
• 2016 in Bitfinex

These exchanges are new to this business, and may not have a real transparent business structure, so buyer beware when depositing money with them.   Crytocurrencies are not backed by SIPC insurance for the Bitcoin brokers, so it is up to the exchanges to make customer whole in the event of a loss due to foul play.  

To learn more about trading Bitcoin, Blockchain, and a list of the exchanges currently trading Bitcoin, check out our post What You Really Need to Know About Trading Bitcoin.  

Great Point Capital has been serving the trading community since 2001 with expertise in equities and equity options.  We provide Takion software and a network of experienced traders with proven trading strategies to enhance your performance.  Contact us today to learn more and to earn your maximum potential.