How to trade in Bitcoins ?

We can buy or sell Bitcoins with anybody. For instance, we could buy Bitcoins locally with Zebpay.com, Unocoin.com, coinbase.com

Here is a sample screen:

“There are few noticeable and interesting  developments in this market:

1. Online prices are more consistent than what we would expect them to be.
2. Local prices could be both over and under the online price.
3. There is as much as a 24% difference between the lowest and highest prices approximately. Ignore the wild $256.20/BTC. Everyone else will.

This is key information for day trading scenarios. We could conceivably buy Bitcoins for $122.96 in lots up to $1000. Then we could sell them all day long for $140.81.

Our profit works out to about 8 x $17 = $136 (We will neglect gas costs, and buying fractional amounts of Bitcoins

We could also simply buy Bitcoins online and then sell them locally for a small mark-up. This seems to be the simple trading system of choice for the $153 and $147 sellers.

All we need to do is follow the early steps described in the section How to Use Bitcoins. Briefly, we buy Bitcoins using our Dwolla, Coinbase, Blockchain, or other wallet with a custom produced address from a Bitcoin exchange. We can choose MtGox, Bitcoin-24, Bitcoin7, or others.

Then we sign-up for sites like zebpay, LocalBitcoin. We will have to post our price on their “Sell Bitcoins” section, and we are in the Bitcoin trading business. While this “arbitrage” method of trading can deliver a reasonable profit, there are bigger profits available for more profit hungery folks.
Our best opportunity for trading with Bitcoins involves online only trading. We will buy BTC with our national currency through a trading exchange, and then sell BTC for either our own national currency, or another national currency.

Switching currencies may not be allowed on certain exchanges or in certain countries. Switching currencies between the buy side and sell side of our trade can also add significant complication to our trade. A better move is to stick with one national currency unless we are experienced with FOREX trading already.

Here is what a BTC Buy Order with MtGox looks like for a new account that has not been funded yet:

“We can enter any amount under “Amount of BTC to BUY” that we have funded. For this new account, that is $0.00. It could be initially as high as $4000 for most new accounts. Some exchanges have no limits, and some have staged limits over time.

The “Price per coin in USD” is set automatically here at 127 and change. It will move up or down as we wait to execute the order. This is extremely important to consider. Speed, timing, and execution all affect the price we pay.

After we enter the Amount of BTC to Buy, hit the BUY button, there will be a lag sometimes, but often the order gets executed immediately.

Presto! We are a Bitcoin trader!

Now, for the nuts and bolts of selling Bitcoins, much is the same in terms of fields, with a key difference. When we sell Bitcoins, the exchange takes a slice of the transaction in the form of a reduced selling price. Other exchanges operate differently.

“The difference between the BTC Buy price and the BTC Sell price is called the “spread.” It is also sometimes known as the Bid/Ask spread. Bid for what buyers are willing to pay, and Ask for what sellers are willing to sell at.

For this case the BUY/SELL is about $0.40 USD. Not a large spread, amounting to less than 0.5% of the trade.

The good news here is that trading Bitcoins is not administratively expensive. The In/Out costs or round trip are less than 1% of the trade, and often free. Some stock, options, and commodities traders can see In/Out costs between bid/ask, commissions, and exchange fees of closer to 3% or higher.
Trading on other Bitcoin exchanges operates in a similar fashion to MtGox.

This is all manual entry trading, not automated or computerized trading. Manual trading can deliver fantastic returns so long as we time our trades and our directions correctly. That is the focus of the next section – answering the question of up or down and when.

Source: Daniel Forrester. “Bitcoin Exposed: Today’s Complete Guide to Tomorrow’s Currency.” iBooks.