4. Trading examples
Let’s take a look at a couple of examples to find out how trading Bitcoin and other cryptos works in practice.
Example of trading Bitcoin
Your research in the cryptocurrency markets suggests that the price of Bitcoin will go higher. You open a long position (buy) of 0.1 Lot on Bitcoin (BTC/USD) at $40,041. This corresponds to one-tenth of a Bitcoin and your profit or loss is calculated as the difference between the opening and closing price divided by 10.
In a few days the price rebounds and reaches $44,560. You decide to close your position and lock in your profits. Well done! You made $451.90.
After conducting thorough research, you’re convinced that the most recent rally in Bitcoin prices is about to fizzle.. You decide to place a trade confident that the BTC/USD price is going down in the near future and sell 0.1 lots of Bitcoin (BTC/USD) at $45,550. This corresponds to one-tenth of a Bitcoin and your profit or loss is calculated as the difference between the opening and closing price divided by 10.
After three hours fresh buying from large institutional investors push the price to new heights at $48,100, where your stop loss order is triggered. Your loss is the difference between the opening and the closing price. As a result, after stop loss order gets hit, your loss is $255 before commissions.
Example of trading Ethereum
Let’s suppose that after analysing the market, you’re confident that Ethereum prices are about to go up and hit a new high. Your technical analysis suggests that a good entry point is around $2900. You open a trade and buy 1 lot of ETH/USD, which corresponds to one Ethereum.
Despite your conviction, Ethereum’s price reverses and trails lower towards the $2,600 mark. You decide to exit the trade and close your position. Your loss is the difference between the opening and closing price. As a result, after closing the trade you lose a net of $300 before commissions.
In an alternative scenario, your analysis points that Ethereum prices are about to crash after news about a big wallet hack break. Your market view is that prices are about to drift lower and you open a trade and sell 1 lot of ETH/USD, which corresponds to one Ethereum at $3,300.
As the news about the hack spreads, Ethereum’s price sinks lower towards the $2,900 mark. Your take profit order at $2950 gets hit and your position gets closed. Your gain is the difference between the opening and closing price. As a result, after closing the trade you gain $350 before commissions.