How to Trade Bitcoin CFDs in 2021

July 30, 2021 16:30 UTC
Reading time: 26 minutes

Have you incorporated Bitcoin CFDs into your overall trading plan yet? Learning how to trade Bitcoin CFDs in 2021 is certainly a topic which has been on the minds of many traders, alike. Given the incredible amount of volatility on the price of Bitcoin, this poses potential opportunities to retail traders (as well as, naturally, a risk factor that must be considered). Let us explain to you in detail how to trade Bitcoin CFDs in any market condition, and see if Bitcoin and other crypto CFDs have a place in your portfolio. As the old saying goes: Risk can bring reward. How you manage such is key. 

how to trade bitcoin cfds

Introduction to Bitcoin and Bitcoin CFDs 

Taking into consideration that Bitcoin and other cryptocurrencies have increased in both use and value in recent years, it's only natural to pay attention to this in your trading activity. While there are many factors which affect the price fluctuations, it is important to also consider the historical analysis of Bitcoin's price and what strategies should be in place. 

Over the last decade, one of the biggest and most elusive questions within the world of finance (and world as a whole) has remained: What is Bitcoin? The invention of Bitcoin dating back to 2010 has since sparked plenty of controversy; the concept of decentralized currency has caused both stirs and hopes amongst people and institutions all over the globe. Now, in 2021, Bitcoin has become quite established in the everyday world and dare we say, somewhat normalized in concept, thanks to blockchain technology. While there are certainly many opinions on Bitcoin, it is reasonable to say from an unbiased perspective that cryptocurrency is likely here for the long haul. 

If you've been following the world of digital currency, which is volatile in itself, you may be aware of a few important facts regarding Bitcoin, the front runner of all cryptocurrencies. Aside from it being the very first and most established, an important factor to consider in regards to its price evaluation (and consequential price fluctuations) is that there will only, ever, be 21 million Bitcoin in total existence. While at this time of writing, there is a total of 18.75 million mined Bitcoin in circulation – so we are not far off from the cap. 

If we take it back to basics for a moment, we can make a general rationale that limited supply generally causes increased demand, which naturally causes the price to rise. Bitcoin, and the topic of how to trade Bitcoin CFDs, is not quite that simple nor black or white, however it is an important and basic factor to consider when you form an opinion on Bitcoin's long-term potential. 

And for the short term? Both perspectives are indeed important, however when learning how to trade Bitcoin CFDs, the short term is most certainly your main focus. Applying technical analysis to assist with short-term trade setups will be your go-to strategy. That is your key advantage over others who have yet to learn about Bitcoin CFD trading, and are perhaps directly buying and selling BTC in hopes of profit.  

Before we have a look at any specific bitcoin CFD trading strategies and their associated market signals, let's review other important aspects connected to both bitcoin and cryptocurrency, as a whole. 

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What Influences Bitcoin's Volatility? 

Is there really a simple answer to "why is Bitcoin so volatile?" There are answers, yes. Is everything clean cut and simple? Not quite. The history of Bitcoin's (and other cryptocurrencies) price shows nothing less than extreme volatility. As many traders and investors will agree, volatility can bring sizeable advantages and potential in the market, which always must be approached with an understanding of risk and your own defined risk management. Naturally this is crucial to understand when learning how to trade Bitcoin CFDs.  

Bitcoin and the cryptocurrency market as a whole remains volatile due to various factors. Bitcoin is very much in what we can call a 'price discovery phase'; after 13 years in existence, it is making its place and purpose in the everyday world, more so each day – which we will revisit in more detail later on.   

Before we expand into the reasons for Bitcoin's volatility, it is notable to mention as a reminder that bitcoin and cryptocurrencies in general have no central bank to intervene, hence the decentralization. As with fiat currencies and currency pairs, there is no possibility to artificially subdue volatility (with cryptocurrencies). A golden way to describe this, perhaps, is Bitcoin's volatility is thanks to a newfound market which is free from distortion. Established but terminal value is still undefined. 

While Bitcoin and cryptocurrency remains a young asset class, it has been one of the best performing assets over the last decade

Before deciding whether to trade Bitcoin CFDs, it is a good idea to familiarise yourself with what factors affect Bitcoin's volatility. Below we will list some of the key factors. 

Media and News Events 

As with any financial asset, Bitcoin and hence Bitcoin CFDs experience a price fluctuation based on current events in the media. Naturally, this can go either way – up or down – as recent history has made clear. 

At this time of writing, in July 2021, the price of Bitcoin has been on a rapid decrease. This is perhaps the very best example to highlight when it comes to how much the media affects the price of financial assets, in this case, Bitcoin. An internet slang term coined appropriately the 'Musk effect', Elon Musk sent out a series of tweets in early 2021 which had Bitcoin's volatility hit a new extreme. While Musk first mentioned in February that Tesla had invested $1.5bn, causing BTC's price to rise to new highs, he then later hinted Tesla would sell off its BTC, sending the price crashing in a downward spiral. At this moment it is still yet to recover fully, which is good news for those who see this as a prime buying opportunity. 

Let this be a good point to reinstate that, if you choose to trade Bitcoin CFDs or crypto CFDs, this is something you must pay attention to and consider in your trading strategy. Consider this part of your fundamental analysis, which goes hand in hand with your technical analysis, in order to have an overall well-rounded CFD trading strategy. 

Government Regulation 

Over the last decade, which sums up more or less the lifecycle of Bitcoin, government regulation has been a very hot topic – as well as a volatile one, which the irony is certainly not lost on.  

Many countries now consider Bitcoin to be a taxable asset. The US Commodity Futures Trading Commission (CFTC) announced back in 2015 that Bitcoin and its cryptocurrency counterparts would be considered a commodity. It also now has a place in the US derivatives market. Canada also views Bitcoin as a commodity, according to the Canada revenue Agency (CRA). 

As of September 7th, 2021, Bitcoin will become legal tender in El Salvador – a move which is sure to bring interesting and volatile moves. The European Union is currently in the works to implement a Regulation on Markets in Crypto Assets (MiCA), with many countries within the EU maintaining a positive outlook towards cryptocurrency. 

That said, there is always another side of the coin, pun intended. China has been very clear on their negative outlook on Bitcoin, which is ironic considering most miners over the last decade have hailed from China. Russia has also maintained their negative stance on crypto. Most recently, Turkey, India, Ecuador and Bolivia, Nepal, South Korea, along with other countries have made it clear they are not on board with cryptocurrency having a place in their financial infrastructures. 

There will certainly always be opposing views in topics as controversial as cryptocurrency, but is this not just another tool to utilize in when learning how to trade Bitcoin CFDs? 

Bitcoin's Future Perspectives 

Perhaps this is stating the obvious, but a major factor in Bitcoin's volatility is the uncertainty of future value cases. The intrinsic value is still unclear on whether it will remain both a store of value and option for transferring value. Based on what we have seen in terms of the development over the last decade, the outlook generally seems positive as to the future of Bitcoin and the certainty of its placement in the financial world. However, one must always keep a level of awareness to how quickly these aspects can change. As it remains a young asset class in traditional senses, awareness is key. This factor, as the others, does however also give a CFD trader yet another tool to use within your overall trading strategy; the understanding and awareness alone makes for the ability to form more solid trading decisions in a time of volatility. 

Lack of Liquidity 

Considering the topic of volatility, this goes more or less hand in hand when it comes to determining how liquid an asset is, or isn’t. Bitcoin and cryptocurrency in general are certainly considered low liquidity assets; a major transaction made within the Bitcoin network or any crypto seriously affects the asset price, hence its volatility.  

A crucial point to also consider when determining liquidity, is how easily the asset is exchanged for fiat and how stable the price remains when operating such an asset, in this case Bitcoin. There is absolutely what we call slippage between the expected and executed rate, when discussing a straight trade on Bitcoin's underlying asset, or exchange into fiat.  

By the way, this is the ideal moment to make a golden comparison: trading actual Bitcoin on any given exchange always incurs extra costs, however – said costs are either eliminated completely or much lower when opting to trade Bitcoin CFDs instead. Not only so, it is faster to complete the trade, in many senses more secure given the platform used, and actually a 'higher liquidity strategy' as you are not involving exchange and network fees, which are a crucial part of the low liquidity in the first place. 

If you are serious about learning how to trade Bitcoin CFDs, or trading crypto CFDs in general, this is such an important, if not the most important, takeaway – Crypto CFD trading in many ways increases the liquidity, hence partially stabilizing your trade and contributing to a portion of your risk management strategy from a fundamental perspective.  

BTCUSD Weekly Chart MetaTrader 5Depicted: Admirals MetaTrader 5 with MT5-SE Add-on BTCUSD Weekly Chart. Date Range: 27 September 2015 - 3 August 2020. Accessed: 3 August 2020 - Please note: Past performance is not a reliable indicator of future results, or future performance.

Current vs. Historical Price: Trending or Ranging?

We can easily say that the price is trending, even on higher time frames. When you spot a big trend on higher time frames, it means that higher time frame momentum is also transferred to lower time frames. Accordingly, lower time frames (H1, H4) piggyback the momentum from higher time frames and theoretically enable intraday traders to enjoy positive outcomes. At this point, the current scenario is to buy the dips on the BTC/USD currency pair due to the established bullish trend.

Due to the lack of long-term historical data, we can only compare the current moment with recent history (since 2012), but it should be more than enough to go with the flow and use various trading strategies that might provide more opportunity for profits than simply buying the Bitcoin commodity itself.

How to Trade Bitcoin CFDs

Trading Bitcoin CFDs is probably not much different from trading any other currency pair, commodity or CFD showing a strong trend. The beauty of trading lies in its diversity, and through price action studies, traders should be able to make profits that make them financially independent and stable.

Trading strategies which utilise Bitcoin CFDs benefit from trading on margin, meaning that traders can open positions without having the full cost of the position in their account balance. This provides the possibility of magnified profits, but must be used carefully, as trading on margin can just as easily magnify losses.

Bitcoin CFD traders should be focused on:

  1. Riding the trend (uptrend until proven otherwise);
  2. Proper money management;
  3. The major sessions: London, New York, and Tokyo.

Buying a dip in BTC/USD is important because it gives traders the opportunity to join the market majority and ride the impulse. Of course, the trend will change, but at this point, BTC/USD is showing an exceptionally strong trend.

Proper money management is the holy grail of trading, and if applied correctly in a strong trending environment, it should theoretically create a good Return On Investment (ROI).

Traders should definitely be focused on major trading sessions as major trading centres provide the highest volatility in BTC/USD. Fortunately enough, our MetaTrader 4 (MT4) platform offers the instrument during the major market sessions 24/7. It should also be mentioned that you should only trade Bitcoin CFDs with a regulated Forex & CFD broker, like Admirals. 

Trade Cryptocurrency CFDs With Admirals 

Are you ready to use your Bitcoin trading strategies in the growing cryptocurrency market? Admirals enables professional traders to trade 24 hours a day, 7 days a week with the USD, EUR and crypto cross, as well as the ability to go long or short on any cryptocurrency CFDs, with no actual crypto assets required for trading. Trade CFDs on BTCEUR, ETHEUR, XRPEUR, BTCUSD, and many more. Click the banner below to open an account and start trading: 

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Bitcoin Trading Strategies

Bitcoin Scalping Strategy

It is recommended to use a scalping strategy in order to exploit volatility to your advantage. Scalping the BTC/USD pair is performed using an excellent Double MACD strategy (which is also covered in our Forex 101 course). Due to volatility and trend, this strategy is suitable for trading BTC/USD on shorter time frames, such as the m5.

This strategy for trading BTC/USD uses 2 EMAs (Exponential Moving Averages), 34 and 55, 2 Stochastics that are overlaid (8,1,3 and 13,1,3), a MACD 2Line indicator (34,89,34), or the default MT4 MACD - if you don't have the MACD 2Line, and the Admiral Markets Pivot, which is available with MetaTrader Supreme Edition.

There is also a complete template included with all indicators that you can automatically load into your MT4 with the help of the Forex 101 trading course. If you decide to use the strategy without Forex 101, this is how you can set it up on your chart:

  • Open your 5m BTC/USD chart
  • Apply 34 and 55 EMAs. Blue is the 34 EMA, Red is the 55 EMA. Both are set on close:
  • Add the MACD (34,89.34)
  • Add the Stochastic (8,1,3) and (13,1,3) overlaid in the same window
  • Finally, add the Admiral Pivot set on daily pivots

BTCUSD 5M Chart MetaTrader 5Depicted: Admirals MetaTrader 5 with MT5-SE Add-on BTCUSD M5 Chart. Date Range: 2 August 2020 - 3 August 2020. Accessed: 3 August 2020 - Please note: Past performance is not a reliable indicator of future results, or future performance.

  1. You buy BTC/USD when Blue 34 EMA is higher than Red 55 EMA.
  2. The price needs to pullback towards the EMAs. Ideally, it should stop at the EMAs or pullback slightly below them.
  3. The MACD is above 0 (or the MACD must show a blue histogram if you use the template from Forex 101).
  4. Any of the Stochastics should be below 20 and pointed upwards (ideally, cross 20 from below)
  5. The target is the next Admiral Pivot with the stop-loss below the previous swing low.

Bitcoin Day Trading

For intraday trading, you might want to use our scalping strategy several times a day. Alternatively, if you have a day job and time doesn't allow you to scalp, you might want to use Bitcoin day trading strategies.

This day trading strategy involves the MACD with the RSI and CCI indicators for intraday traders. You will also need to apply the Admiral Pivot indicator.

The indicators for this strategy are used on a M30 timeframe:

  1. RSI (10,close)
  2. CCI (14,typical price HLC/3)
  3. MACD (12,26,9)
  4. Admiral Pivot

Traders using this Bitcoin trading strategy buy BTC/USD when the market signals are as following:

  1. MACD>O
  2. RSI>50
  3. CCI>0
  4. The price is slightly above pivot point support

A stop-loss is placed below the entry point, while the target price is the Admiral Pivot resistance. In strong trends, this could be a winning day trading strategy for BTC/USD.

BTCUSD M30 Chart MetaTrader 5Depicted: Admirals MetaTrader 5 with MT5-SE Add-on BTCUSD M30 Chart. Date Range: 1 August 2020 - 4 August 2020. Accessed: 4 August 2020 - Please note: Past performance is not a reliable indicator of future results, or future performance.

Trading Bitcoin CFDs vs. On The Exchange 

There are many benefits to learning how to trade Bitcoin CFDs, opposed to trading crypto directly within the exchanges. As Bitcoin and crypto as a whole is still considered a 'young asset class', many traders may not even be aware of the potential to trade Bitcoin CFDs in the first place, along with many other crypto CFD pairings

In order for you to easily digest the differences between the two, we will summarize below the benefits which carry on when you choose to trade Bitcoin and crypto CFDs: 

Asset Remains More Stable 

As Bitcoin and crypto as a whole are considered to be of low liquidity, trading Bitcoin CFDs in large moves (or any size of move) actually has no effect on the market itself (as it would if you were trading directly with Bitcoin). You are simply buying the contract on the current price, whether it be a Buy (predicting price to rise) or Sell (predicting price to decrease) order. 

Option to Trade Bitcoin CFDs with Leverage 

If used correctly, with caution and utilizing your risk management, leverage can be a great tool and benefit for CFDs traders. Leverage is basically money borrowed from the broker to increase your position.  

For example, you open a $100 position on BTC/USD with 1:10 leverage added to it. That $100 original position is now $1000, thanks to leverage given by the broker. Now let's say BTC increases 50% - your position is now worth $1500. You close the position and Take Profit. Given your leverage of 1:10, you must repay the broker $900 and an extra $50 from the profit. Your end profit is $450 from $100. 

This is, of course, a very basic and optimistic scenario, but for the sake of explanation. Please make sure you understand what is leverage in trading and the risks associated with it before making any decisions. 

The Security of Liquidity 

A CFD from a liquidity perspective is basically fiat; when you choose to close your position and Take Profit, the funds, whether it be US Dollar, Euro or otherwise, are returned back to your account. The transaction is simple, low cost and very efficient. 

If you find yourself instead trading bitcoin or cryptocurrencies on the exchanges directly with the asset, you must consider it is a longer process to eventually extract your profit from the trade. Not to mention, it is certainly more costly and is a cause for 'slippage'. Exchanges are known for high fees, transactions are rarely immediate, and inevitably through this process your profits are minimized. It is notable to remind again the factor of low liquidity which follows big market moves directly with the asset. You are also often limited to how much you can withdrawal from exchanges within a 24 hour period. 

The Security of Assets 

Anyone who is relatively familiar with Bitcoin or the crypto industry has heard of security breaches within the network, as we have mentioned at the beginning of this article. Where the relevance lies here, in comparing the crypto asset with the crypto CFD, is security is a much less worrying factor in regards to Bitcoin CFDs. Rarely is a CFD network to be hacked, where exchanges being hacked is unfortunately, more common. 

Disadvantages of trading Bitcoin and crypto CFDs in comparison to the actual asset are considerably less. Some may argue they wish to own the actual crypto asset, which certainly has benefits, especially for the long term. But from a trading perspective, hence short term, it is not the most logical option. 

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Market Sentiment – Impact of Hype in the Media 

Ever since Bitcoin started to lift off, the market sentiment has been astonishingly bullish, with some definite bearish moments as well. Upon the CoinBase IPO earlier this year, in April 2021, the Bitcoin price hit its highest yet – an all-time high of $63,729.50. Currently, in August 2021, after quite a significant drop, it is edging around $40,000. The volatility of this financial instrument is truly astonishing and unlike anything else seen previously in the financial world. 

The media has been guilty of over-hyping the Bitcoin currency, but the real reason might be the technology behind the blockchain. Many industries have been exploring its benefits, including: healthcare, insurance, real estate, telecommunications, retail, among many others, and more to come. Bitcoin has gained popularity as the world's best and most profitable cryptocurrency, with more and more people joining the network on a daily basis.  

If you want to become involved in the world of digital currencies from a trading standpoint, the solution is not to mine BTC, but rather to trade it versus other FIAT currencies, e.g., USD or EUR. You are able to trade in either direction, whether the price is rising or falling; naturally, you have to consider this in both your trading strategy and risk management strategy. Don't forget that through our platform, you have 24/7 access to trade CFDs with BTC/USD and BTC/EUR. 

Trading Bitcoin and Crypto CFDs at Admirals 

As one may imagine, there are many options for trading digital currency pairs, both with fiat currency and paired with other digital currencies. It may go without saying but the most common CFD pairing is with the US dollar – for example, BTC/USD. Admirals offers the option to trade various digital currency CFDs with EUR, as an alternative from USD, as well as trading with digital currency cross pairs.   

While Bitcoin has certainly maintained to be the most popular cryptocurrency to trade CFDs with, specifically the BTC/USD pairing, there are many more options to choose from as we've summarized. Admirals currently offers 10 digital currency cross pairs, and 22 total digital currency with fiat pairings. You can review this more in detail here. It is notable to mention, and even more so to recommend, that if you are new to trading CFDs, or are new to the world of digital currency pairings, make use of the digital currency demo trading account first. This way you can practice any strategy of interest without risking your capital. Once comfortable with your strategy or strategies, you can go in knowledgably and trade with capital via a live account. 

Remember: Traders and investors of Admirals have a chance to utilize various free trading tools with either a demo or live account; we pride ourselves on all of the valuable tools and resources we make available, for free, to our users. For example, MetaTrader 4 and MetaTrader 5 are thought to be crucial to any trader's journey, given the extensive implementation options within the charts, live real data options, and flexibility in the date ranges (among other things). View our account types and you can see in more detail information on trading instruments, leverage, currencies and much more. 

UPDATE AS OF AUGUST 5, 2021: 

We have reduced the Typical Spreads for some of our most popular crypto CFD pairings

๐Ÿ”ต BTCUSD and BTCEUR - 0.3% (instead of 0.5%)  

๐Ÿ”ต ETHUSD and ETHEUR - 0.3% (instead of 0.5%)  

๐Ÿ”ต BCHUSD and BCHEUR - 0.3% (instead of 1%)  

๐Ÿ”ต LTCUSD and LTCEUR - 0.5% (instead of 1%) 

Utilize these lower Typical Spreads by registering for a live account now.

Conclusion 

Bitcoin and digital currency as a whole are certainly forces to be recognized in this new world of trading digital currencies. In whichever way you define your trading strategy, digital currency CFDs and more specifically, Bitcoin CFDs may be something you want to consider incorporating. 

A good trading takeaway to keep in mind – Massive retracements typically bring buying opportunities; given the mass number of retracements seen on the BTCUSD long term charts, the opportunities are in plain sight. To continue from this trading takeaway, remember also, history almost always repeats itself. An efficient trading strategy with Bitcoin CFDs (and any instrument for that matter), is to always track and reuse your strategies based on previous similar patterns. Admirals traders are free to use MetaTrader 4, MetaTrader 5 and the MetaTrader Supreme Edition add-on for free, in order to determine such patterns of interest.

How does the expression go? High risk, high reward. Like any stock, commodity or otherwise, Bitcoin and cryptocurrency are subject to price swings. The key to success and manageable risk is trading infrastructure, tools (like our free trading platforms) and of course, risk management. Define your trading plan and stick to it. 

The year 2021 has seen not only retail buyers participating in Bitcoin trading and investing, but also the corporate world and many institutional financial firms. As more institutional investors take part, stability will become more evident, especially as more derivatives and investment products come on the market. You may want to enjoy and take part in this volatility, while it's still possible. After all – Opportunities are never lost; someone will always take those which are missed. 

Have You Tried Trading with a Demo Account? 

Traders and investors who choose Admirals also have the ability to trade on a free demo trading account. This means that traders have the option to practice Bitcoin trading strategies without putting their capital at risk, and they can choose when they wish to move to the live markets. For instance, Admirals' demo trading account enables traders to gain access to the latest real-time market data, the ability to trade with virtual currency, and access to the latest trading insights from expert traders. To open your free demo trading account, click the banner below: 

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INFORMATION ABOUT ANALYTICAL MATERIALS: 

The given data provides additional information regarding all analysis, estimates, prognosis, forecasts, market reviews, weekly outlooks or other similar assessments or information (hereinafter “Analysis”) published on the websites of Admiral Markets investment firms operating under the Admiral Markets trademark (hereinafter “Admiral Markets”). Before making any investment decisions please pay close attention to the following: 

1. This is a marketing communication. The content is published for informative purposes only and is in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research. 

2. Any investment decision is made by each client alone whereas Admiral Markets shall not be responsible for any loss or damage arising from any such decision, whether or not based on the content. 

3. With view to protecting the interests of our clients and the objectivity of the Analysis, Admiral Markets has established relevant internal procedures for prevention and management of conflicts of interest. 

4. The Analysis is prepared by an independent analyst (hereinafter “Author”) based on the Brandie E Blackler (Financial Writer) personal estimations. 

5. Whilst every reasonable effort is taken to ensure that all sources of the content are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admiral Markets does not guarantee the accuracy or completeness of any information contained within the Analysis. 

6. Any kind of past or modeled performance of financial instruments indicated within the content should not be construed as an express or implied promise, guarantee or implication by Admiral Markets for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed. 

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Brandie E Blackler
Brandie E Blackler
Trader and Financial Writer, Admirals, London

Brandie has worked professionally as a financial writer and digital marketing consultant for 12 years, while she also is an active retail swing trader and investor for the past 7 years. Brandie specializes in digital currencies and CFD trading at Admirals