When it comes to making money from bitcoin there are two main methods people use.
They either purchase bitcoin in the hope that over a long duration of time the price is going to rise enough for them to make a decent profit (Bitcoin investing). Or they buy and sell bitcoin over and over again after the price has risen a small amount relative to what they brought (Bitcoin trading).
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There are pros and cons to both trading and investing in bitcoin, but what I want to explain today are the differences between the two methods, because recently I’ve had a lot of emails from people who seem to think trading bitcoin is just the same as investing in it, (which isn’t true) and I want to make sure it’s clear to everyone what the differences are before they decide to start investing or trading bitcoin.
Investors Hold For Longer
Probably the main difference is that people who invest in bitcoin will hold their positions open for a substantially longer time than the people who trade it. The reason they hold them for longer is that they’re trying to make money from a much bigger price movement than what the traders are.
Bitcoin traders are only aiming to make money from price movements that last anywhere from a few minutes to a few months (depending on the trading style), so they don’t have to hold their trades open that long to make a profit.
Bitcoin investors on the other hand are aiming to make money from movements that last upwards of a year or more, meaning they have to hold their positions open for a long time to make the return they want.
The fact they hold their positions longer also means they tend to just make one big purchase of bitcoin when it reaches a selected price. In comparison, people who trade bitcoin will purchase a comparatively small amount in the hope of selling it later once the price has risen by an amount they deem to be sufficient.
Once it’s risen to an amount they’re comfortable with they sell it before repeating the whole process, making a small return many times over, instead of one large return over time like the investors do.
The Trading Strategies Are Different
Though the basic means by which you make money trading and investing bitcoin are the same, (you buy low and sell high), the strategies used to buy low and sell high differ between traders and investors. The main reason they differ is because of the time horizons traders and investors have for making a profit off their bitcoin.
Investors are not expecting to make a profit off their bitcoin straight away, so they don’t mind using strategies that aren’t that accurate in predicting when price moves are going to take place.
Traders on the other hand are expecting to make a profit straight away, or at least a short time after their trade has been placed, so they’ll only tend to use trading strategies that give them a signal to enter a trade right when a price move is about to occur.
Traders Take Losses, Investors Wait Them Out
One of the biggest differences between trading and investing bitcoin, is traders will typically take losses on their trades, whilst investors will simply wait them out.
Because traders are buying and selling bitcoin much more frequently than investors, it means they can’t just hold onto their bitcoin whilst they’re worth less than what they purchased them for.
They have to close them at a small loss to get some of the money back so they can buy more bitcoin in the future – and thus take advantage of other opportunities which may arise and allow them to make a profit.
Investors don’t mind if the price drops below the price at which they purchased their bitcoin, as they know they can just wait until it rises to make back their investment, though there are no guarantees the price is going to rise again.
Trading/Investing Bitcoin Only Suits Certain Types Of People
Though anyone can trade or invest in bitcoin, overall people tend to be more suited to doing one or the other, based on their personality and lifestyle.
For example, investing in bitcoin tends to be more suitable for people who have a lot of patience, as it usually takes quite a long time for the price to rise enough for the investment to make a decent return.
On the other hand, someone with little patience is likely to find it easier to trade bitcoin, as the amount of time you have to hold onto a trade to make a decent return is much lower than what it is when you invest.
The type of lifestyle you have also played a part in which method you’re more suited to.
Somebody who has no work commitments is better off trading bitcoin because they have lots of free time available to place and manage trades. Someone who does have work commitments will find it difficult to place and manage trades, so is better off purchasing bitcoin as an investment.