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Now, this is my disclaimer: I'm very, very inexperienced with trading and general concepts of finance.

The way I understand it, the only way to make money from bitcoin is either to mine them yourself, or to trade them.

Now, the way I see to make money from trading is to buy btc with dollars when they are at a certain value, then wait and hope that they rise in value, then sell them back for more dollars. How else does one "trade" bitcoins?

Can anyone give me a simple answer? Perhaps just some key concepts that I can look up for myself.

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    It's a simple as deposit, buy low, sell high, try to withdraw... find you have to send them ID... have a massive delay on withdrawal... exchange where you're trading gets hacked... The main problems are: - trying to predict price movement is difficult. imho the biggest problem is your own psychology will cause you to get it wrong. Temptation, greed, following the herd and more personality flaws will cause you loss - the next problem is that there is no reliable, cheap or decentralised ways to trade. Your funds are at risk from: - real hacks - fake hacks - government confiscation due to needing
    – user8842
    Nov 16, 2013 at 22:17

2 Answers 2

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If you buy Bitcoins at one price and then sell them for a higher price, you make a profit of the difference between those two prices, less any commission that you paid. However, if the price goes down, you will be in the uncomfortable position of having to either sell them for a loss or hold and hope the price goes back up while risking higher and higher losses if the price continues to drop. Before the current rise to over $200, Bitcoins once dropped from $35 each to $2 each.

What I'm saying is that you should definitely not invest any money you cannot afford to lose, understand that you may have to take a big loss if you're forced to sell out when the market is weak, and also realize that the entire Bitcoin economy could collapse at any time.

The other issue you have to consider is how you're going to store your Bitcoins. You can store them yourself using the Satoshi Bitcoin client. But then if your computer is hacked or your hard drive crashes and your wallet isn't properly backed up, you can lose everything. If you use an online wallet service, like the one built into most exchanges, there is always the risk that the service will go out of business or steal your funds and claim you withdrew them.

There is huge upside potential, but the risks should not be understated.

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  • Thanks for the answer, that matches up with my initial understanding. With only a single bitcoin "market" it seems that the only way to make money is to hope the market stays volatile and be lucky with your timing. There's no way to hedge your bets that I see with only a single market. Unfortunately, I would assume, that same volatility will prevent actual producers wanting to sell products or provide services because by the time they are paid they may have lost money!
    – user4208
    Apr 11, 2013 at 5:40
  • It does discourage people somewhat. However, the general trend has been upward, so some people see the upside potential as outweighing the risk. I definitely agree that if Bitcoin's price were more stable, it would be more useful as a means of exchange. There's always a fear that the price of Bitcoins could drop to zero overnight or you might quote someone a price in Bitcoins, the price will drop, and then they'll make payment only because you've underpriced things. There's also the refund problem -- someone who paid in Bitcoins may want a refund in Bitcoins if the price goes up.
    – David Schwartz
    Apr 11, 2013 at 5:52
  • On BTC/USD trading back and forth, how slow is it on average? To me, watching on the sidelines with my boss's transactions, it was seeming so slow as to be impractical? Or is it only slow if you are trying to do arbitrage from one network to another?
    – Volomike
    Apr 11, 2013 at 15:48
  • And would it be faster to do BTC/LTC trading, rather than BTC/USD trading, due to not having to use real banks? I mean, that way, I can grow using a strategy like dollar cost averaging, and then do a cashout to USD eventually via various gift cards.
    – Volomike
    Apr 11, 2013 at 15:48
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    @Volomike I just did my first trade on mtgox, and it went through instantly. If you want to cash out though, it takes 3-5 days I believe to transfer to your bank account. Trading is instant if you keep the dollars or btc in your mtgox account though.
    – user4208
    Apr 19, 2013 at 4:31
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You can also trade bitcoin with a broker as a CFD service but you should consider your selection to a reliable broker because as mentioned above it could yield serious problems if you don't find a safe place to manage your funds.

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