How to buy Bitcoin in the UK

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What is Bitcoin?

Bitcoin is a platform created by Satoshi Nakamoto, whose true identity is still unknown, and launched in 2009. It was conceived as a peer-to-peer, decentralized, open source payment network that works with cryptography on a blockchain.

Its token or cryptocurrency, named the same as the platform (Bitcoin) is used as a means to transfer value, as a commodity and as an investment asset. The latter due to its price volatility, which allows investors to extract large profits from the market in a short time.

Principal characteristics of Bitcoin

Security:

There is no way someone else can charge you or make payments with your money without your authorization. In addition, all transactions are secured by military-grade cryptography, ensuring that Bitcoin always reach their destination.

Decentralized:

There is no central body regulating Bitcoin, instead, transactions are validated by participants and recorded on the blockchain.

Impossible to forge:

Because Bitcoin works with cryptography, it is not possible to counterfeit a token or use it twice, thus preventing fraud.

Anonymity:

It is possible to make transactions without revealing your identity, thus avoiding the problems caused by using credit card numbers.

Transfer speed:

With Bitcoin, you can complete a transfer from South Africa to Canada in less than 10 minutes. Compared to an international bank transfer which takes at least three days.

Ease of use:

You can make a payment from your cell phone anywhere, anytime by simply scanning the Bitcoin destination address.

Low fees:

As well as transfer speed, low fees give Bitcoin an advantage over traditional banks. Sending and receiving money with Bitcoin has fees close to zero and when they are very small amounts, no commission is applied.

Transparency:

All transactions are recorded on the blockchain and once recorded, they are impossible to modify. In addition, the blockchain is an accounting ledger that can be accessed by anyone and verify the veracity of the information.

The future of Bitcoin

Bitcoin is here to stay and not only among cryptocurrency enthusiasts since, a growing number of large companies are beginning to accept Bitcoin as a form of payment. Among these we can mention:

  • Tesla
  • PayPal
  • Visa
  • Microsoft
  • Shopify

And more and more companies are joining those that already accept Bitcoin to the point that, surely in your locality, there are also small businesses that accept the cryptocurrency as a form of payment for their products or services.

What are the assets you can trade?

About Index Funds

This is the best option for people who can invest in the long term, mostly for beginners, because it is less expensive, diversified, and safer.

You may think differently, but beating the benchmark is far from being a piece of cake and very few fund managers have done it, apart from some specific cases, like Warren Buffett's.

In practice, all that glitters is not gold: if a fund manager achieves to beat the benchmark, it is only for a short period or on a specific occasion. Or perhaps they would charge very high fees and indexing would be a better decision (with minimal commissions).

Index funds offer these two advantages: they usually beat active managers in the long term, and the rates are lower than you imagine.

Currency market

Forex or currency trading allows obtaining profits by exchanging one currency for another.

In case you decide to trade EUR and USD, you acquire euros at their price in dollars, with the expectation that after buying the first currency (the euro) it will raise its price compared to the second (the dollar), to make a profit by selling it. Suppose you entered when a euro is worth 1.10 USD and you exit when it reaches 1.15: that difference is yours once you sell again.

You may be thinking that trading with currencies requires investing considerable amounts, and you're right, since fluctuations are usually minimal, and often you will need to use high leverage (which is an important risk). Our advice for those starting in the world of trading is to choose another market to begin with, since Forex is risky and complex.

This broker allows exchanging the most known currency pairs but take into account that Forex trading functions with contract for differences, so you will not be the owner of the real asset.

About Contracts for Difference

If you already accessed this broker, you probably realized that the acronym CFD appears frequently. Before we come back to it, we must say that cryptocurrency operations on this broker are only CFDs when you are short-selling or leverage over x2 (nevertheless, the platform does not even allow this).

FYI, and if you are considering day trading cryptocurrency and other more advanced practices, below you will also find terms such as leverage and “going short”.

The good thing about this broker is that it allows you not only to bet if you are “in the black”, but through CFDs you can also bet “in red”. In a hypothetical case: you are sure that the Bitcoin will go down, so you clearly think “if it is going to depreciate or go down, I'll just wait until it does”. But if it actually goes down, you can earn some money out of that.

The practice known as “going short” will allow you to do that. It functions, roughly, as it follows:

  • You get from a loan 100 units of Bitcoin, which cost $ 5,000 (these are completely imaginary numbers)
  • You sell them at their current price, $ 5,000
  • The Bitcoin devaluates from $ 50 to $ 30
  • You obtain the 100 units again, but at their current price, $ 3,000
  • Now you return the 100 units
  • The rest is yours, so, you will have made $ 2000

It all sounds more tricky than it really is. Just remember that by trading in Bitcoin on this broker, with CFDs you can earn money when you anticipate the price will fall.

Trading with leverage

In case you are not familiar with the term “leverage”, we'll describe it briefly: it is the possibility to use a higher amount than you actually have. That way, if you start with $ 100 and you use x2 leverage, you will be investing $ 200.

Why using leverage and how to do it

Let's pretend that you are sure that Bitcoin will rise, and you consider “going long. You have $ 1,000, but you actually can invest more and make more money.

Perhaps you could go to your bank, ask for a credit, put an asset as collateral, wait for it to be accepted, wait for the money, send the money to your broker, confirm that it arrived, and then buy Bitcoin… However, when you finish doing all that, probably Bitcoin would be already much higher (if your prediction got confirmed), and it wouldn't be a good idea to invest then.

Thanks to leverage, you can get that amount with two clicks. It's exactly like a loan, but much easier and quicker, and with the advantage that you will be getting it directly from your broker which will let you invest much more than you have on the platform. Before trading, you will be able to choose between the different options as in the image below:

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When operating with other assets you can use even more leverage. The reason: leverage is most used for short-term operations or day trading, and cryptocurrencies tend to be a medium or long-term investment. Let's talk a bit more about how leverage works.

If for your investment of $ 1,000, you use leverage x2, you will be investing $ 2,000, as we mentioned. Your broker puts the remaining amount to reach that figure.

A couple of days pass and turns out that you were right: Bitcoin raises its price by 20% and your money has appreciated reaching $ 2,400. Ok, don't be greedy, let's sell.

You will have to pay back the $ 1,000 of leverage and the net profit would be $ 400 (since the other $ 1,000 was your initial investment).

In conclusion, by investing $ 1000 and obtaining $ 400, your net profit would be 40%. That is pretty decent.

Still wondering where the catch is? The trick is that the risk of losing out is also there. If everything goes according to plan and the price goes up, you will earn profits in little time; but if the opposite happens, you will also lose more really fast.

For example: if instead of increasing by 20%, the price falls by 10%, you do not lose $ 10, but twice (the leverage) that figure, that would be $ 20. That is why the concepts of Take Profit and Stop Loss are so important when using leverage.

Take Profit is used as a form of reducing risks when trading. When you enter, you can set a profit limit and ask that your position is automatically closed when the asset reaches a price.ย 

If you purchased Bitcoin at $ 100, you program your broker to close your operation when it reaches $ 120. That way, you make sure you won't change your mind and decide to keep waiting in case it keeps rising, which could be a mistake since the price could go down again.

Also, if you use leverage you absolutely need to place a Stop Loss order (take into account that any small loss is greater with leverage). Take into account that the broker will recommend a limit for Stop Loss, but it is better to set it lower than that.