Day Trading Bitcoin versus Fiat
Day trading is buying and selling financial instruments — such as bitcoin — within the same trading day. Fiat currency refers to a national government’s legal tender.
Using bitcoin allows you to trade in several different ways. The most obvious way of trading is exchanging bitcoins to and from any of the local currencies it can be traded against.
In most cases, people decide to go after the major fiat currency markets because they generate a lot more trading volume compared to smaller currencies. Hence, the biggest fiat trading market is China, where BTC is traded against Chinese yuan (CNY). Depending on where you live, you may or may not have easy access to CNY for trading purposes. However, a quick call or trip to your local bank may provide you with some very useful information on how to obtain Chinese yuan and at which exchange rate — assuming you are planning to go through with playing the Chinese bitcoin day-trading market.
Other major currencies can be easily converted to and from bitcoin as well, thanks to the multiple exchanges supporting these currencies; at the time of writing, these currencies include the following:
- British pounds
- Canadian dollars
- Russian rubles
- U.S. dollars
If you already own bitcoin, there is no need to obtain any type of fiat currency prior to starting your day-trading experience. Transfer over the bitcoin balance you want to play around with to your favorite exchange and start trading against the fiat currency of your choice. Bitcoin is well known for its volatile nature, so there are gains and losses to be made each and every day. Sometimes those losses or gains will be big, whereas other times they may not be. Alas, that is the life of day trading.
Still other options, besides buying and selling Bitcoin directly, allow you to speculate on the bitcoin/fiat currency markets. Several trading platforms exist that let you speculate on the increase or decrease in bitcoin price versus a certain market — and they even accept bitcoin as payment. These include:
Even though quite a few merchants accept bitcoin payments, nearly all of the funds are converted to fiat currency directly. This is done in order to protect the merchant from any bitcoin price volatility that may occur, which is one of the reasons why so many shopkeepers are happy to join the digital currency train.
On the other hand, these conversions from bitcoin to fiat currency also create a side effect, as there will be sell pressure across the major exchanges. Bitcoin payment processors need to liquidate those bitcoin payments as soon as possible to pay the right amount to the merchant. As a result, there can be a few hefty BTC sell orders going through at certain times, which create a perfect opportunity to scoop up some slightly cheaper bitcoins.
It has to be said, however, that speculating on the bitcoin price is certainly not for the faint-hearted and should be approached with a great deal of caution. Granted, the traditional factors influencing fiat currency also influence the bitcoin price in some way; of more danger is the way in which a new scam, or a major vote of confidence for or against bitcoin, can both shake up the price quite a bit. Yet there is not always a clear reason for a bitcoin price change either, as these things just happen.