What Is a Bitcoin Broker?
When it comes to trading Bitcoin, you can either buy/sell the actual crypto, along with its ownership, by placing buy/sell orders on a Bitcoin or cryptocurrency exchange. Or the other option, and in fact, the most popular one is to do leveraged trading, wherein you don’t actually own the Bitcoin, but can take long or short positions in the market, based on your technical analysis, and still book handsome profits.
The second type of trading activity is more speculative and involves derivative crypto products like CFDs (Contracts for Difference), Futures and Options. The entities that make it possible are called Bitcoin broker platforms.
Unlike Bitcoin exchanges where the buying and selling happen directly between traders, a Bitcoin brokerage works as an intermediary between the trader (buyer/seller) and the market. The price is set by the broker and usually includes a small premium. What makes such brokers so popular is the fact that they enable traders to take big positions and obtain major exposure, without investing plenty of capital.
How Do Bitcoin Brokers Work?
Let’s now go over a simple step-by-step process to learn how BTC brokers work from a trader’s perspective.
Locating a good Bitcoin broker
You must start by locating a broker which meets all your requirements. For this, you’d need to understand your objectives first and then carry out a thorough comparative analysis to find a platform that can help you meet each one of them with ease.
Opening an account
Once you have decided the platform you’re going to trade on, you should open an account with them. It’s normally a 5 to 10 minutes process, and may or may not involve providing personal details like full name, address, contact details, nationality, date of birth etc. depending upon the KYC measures taken by the broker. You may also be asked to upload a government-issued ID proof. In most cases, providing a valid email address for account confirmation is a must. Once the verification/confirmation is complete, you can move on to deposit funds. It’s important to note that while registering with a KYC broker exchange might seem like a hassle, it’s essential for the platforms to keep anti-social elements at bay.
Making a deposit
After your account is opened, you will have to deposit funds in a currency permitted by the broker. Majority of brokers accept all major fiat currencies and/or cryptocurrencies. The deposit can be done with a wallet transfer, credit/debit card, bank transfer, e-wallet, PayPal etc. Please note, there may be a minimum deposit required, which might vary from platform to platform.
Of all the derivative products that can be used to trade Bitcoin, CFDs are the most popular. As also touched upon earlier, Bitcoin contracts for difference provide you with the exposure to current BTC market price, without the need of actually purchasing and owning the coin. You can use a Bitcoin CFD to open long or short positions with a broker, depending upon whether you expect the BTC price to rise or fall. The broker will charge you a spread to open and close the trade. Any proceeds from the trades will get credited to your broker account, and can then be withdrawn easily.