How to buy bitcoin in Australia
Bitcoin’s price has slumped in recent weeks – but does that present a buying opportunity? Learn how to buy bitcoin in Australia here, including crypto exchanges, wallets, bitcoin CFDs and more.
1. Decide how you want to buy bitcoin
The first step to opening your bitcoin position is to choose your preferred method of trading cryptocurrency. There are two main options here: buying bitcoin outright or using bitcoin CFDs to speculate on its price movements.
Here’s a quick rundown of the benefits and drawbacks of both.
Buying bitcoin on exchange
If you want to own bitcoin, then you’ll typically have to buy it via a cryptocurrency exchange. Much like stock exchanges, these companies facilitate the buying and selling of crypto: either matching you with a seller or acting as a market maker by selling to you directly. Unlike stock exchanges, though, they don’t usually have strict requirements on who can use them, so there’s no need to use a broker.
While this makes bitcoin available to everyone, it can also make buying BTC on an exchange risky. Even major, reputable exchanges can experience liquidity issues or disappear completely.
You’ll also need to decide where to store your coins once you’ve bought them. Due to the risks associated with exchanges, many traders choose to keep their BTC in a ‘wallet’ – a digital account used specifically to hold cryptos. However, you’ll need to make sure it is 100% secure. As bitcoin is anonymous, if someone hacks your wallet there’s little chance you’ll get your money back.
Bitcoin CFDs, on the other hand, enable you to take a position on the cryptocurrency without ever owning it. Instead, you trade a derivative called a contract for difference (CFD) which tracks the live price of bitcoin.
Your CFD entitles you to exchange the difference in bitcoin’s price over the course of your position. So if you buy at $18,000 and sell at $20,000, you’ll make $2,000 – just as you would trading bitcoin on an exchange.
There are several benefits to trading BTC without owning it. For one, you don’t have to deal with exchanges and wallets. You can also take advantage of leverage, which means you won’t need the full value of your position in your account in order to trade. And finally, you can short BTC if you think the crypto’s price is about to fall.
Plus, you won’t pay capital gains tax (CGT) on any profits you make.
However, CFDs come with their own unique risks too. Leverage will magnify your profits and your losses, which makes each trade riskier – especially when combined with bitcoin’s extreme volatility. An effective risk management strategy is essential.
2. Choose a bitcoin exchange or provider of bitcoin CFDs
Whether you’ve chosen to buy bitcoin outright or speculate on its price with CFDs, you’ll need an account before you can open your position. When you’re choosing an exchange or a CFD trading provider, it pays to look beyond price.
We’d recommend also looking at:
- Reliability. Check stats on the percentage of orders completed successfully, and how quickly they are executed
- Security. You don’t want to trade with a company that might let you down, so research their security measures
- Support. Can you contact someone if something goes wrong? Do they have comprehensive guides and help materials?
- Range of markets. Consider which other markets you might want to add to your portfolio in the future, as juggling multiple logins can get cumbersome
Opening an account doesn’t take long, and you usually won’t have to pay anything until you actually want to trade. You’ll just need to fill out a few details to confirm your identity, and you may be asked to supply some documents as proof.
If you’ve chosen crypto CFDs, you may also have to answer a few questions to confirm that you have sufficient experience on the markets.
Did you know? If you don’t feel ready for live trading yet, you can open a demo account. These enable you to buy and sell bitcoin with virtual funds, so you can practise without putting your own capital at risk.
A City Index demo, for example, features live prices on bitcoin plus 4,500 other markets. It’s completely free to open one – open your City Index demo here.
3. Add some funds
Next up, it’s time to add some funds to your account so you can trade instantly. Adding funds is simple, and most exchanges or CFD providers have multiple options to suit you.
With City Index Australia, for instance, you can add funds via:
- Credit card
- Debit card
Adding funds is completely free via all the methods listed above.
How much you deposit depends on how much bitcoin you want to buy. Remember, thanks to leverage, you won’t need to deposit the full value of your position if you’re planning on trading crypto CFDs. However, we do recommend adding sufficient funds to cover your margin at all times – even if your trade falls into a loss.
You’ll usually pay to buy bitcoin in one of two ways: commission or the spread. Commission is a fee charged to execute your order, often calculated as a percentage of its total size. The spread, meanwhile, is the difference between the buy and sell prices you see listed for bitcoin. Providers and exchanges who charge via the spread will have a wider gap between these prices, but they won’t charge you any commission.
4. Open your bitcoin position
Finally, it’s time to open your crypto position. To do this, you’ll need to decide its size and direction, then consider adding a take profit and stop loss.
How much bitcoin should you buy?
The size of your first position depends entirely on your available funds and your trading plan. If this is a one-off investment, for example, then you might spend most of your available balance at once – leaving some back to cover any losses.
If you’re day trading bitcoin, on the other hand, then you’ll need to ensure that you have enough funds for future opportunities as well. Lots of day traders only risk 1-2% of their total balance on any given position, which gives them the best chance of trading over the long term.
Whatever your plan, you should decide how much you can afford to lose – remember, trading cryptos is always risky.
Going long or short
Bitcoin is highly volatile, which means it experiences huge price swings in both directions. Many traders try to take advantage of both sides of this equation by shorting bitcoin’s bear runs as well as buying the crypto.
So, when you open your first position, you may want to consider which direction you think bitcoin is heading in.
Much will depend on your chosen timeframe. You might, for example, believe that bitcoin’s overall trend is upward – but that it’s in for a downward run in the next few weeks. If you’re only planning on keeping your position open for a short period, then you’d be better off going short. But longer-term traders might take the risk of near-term loss for the overall gain, or wait for the overall trend to resume before opening their position.
On the City Index platform, you can choose to go short by hitting ‘sell’ instead of ‘buy’.
Take profits and stop losses
Successful traders never enter a position without knowing where they’re going to exit it, whether the trade is successful or not. Take profits and stop losses enable you to automatically close your position when it reaches your profit target or maximum amount of loss.
You might, for example, be targeting 100 points of profit from your bitcoin position, with a maximum loss of 50 points. If you’re buying the crypto, then you’d set a take profit 100 points above your opening level and a stop loss 50 points below it. Then, if either milestone is reached, your trade will close automatically – securing your profit or minimising your loss.
With your size, direction and risk management all set, you should be ready to place your order. On the City Index platform, you do this by hitting ‘Place Trade’.
Monitor and close your trade
Even with a stop and a take profit in place, you’ll want to keep an eye on your position once it is live. After all, conditions may change or new headlines might require you to adapt your strategy at any time.
To manually close your position, you simply make the opposite trade to when you opened it. So if you bought at the outset, you’d sell now. With a short position, you’d buy to close off your exposure. On the City Index platform, you can do this by hitting ‘Close trade'.
How bitcoin works
Bitcoin is the world’s first and leading cryptocurrency – a digital payment system that enables users to store capital, make purchases and more with no regulation from central banks or other entities. In recent years, though, it has chiefly been used as an investment, prized for its rapid growth and lack of correlation with other markets.
But even if you’re only buying bitcoin to diversify your portfolio or speculate on its price action, it still pays to understand how cryptocurrencies work. We’ll cover a few key concepts here, or for a complete breakdown head over to our crypto guides.
The supply of traditional ‘fiat’ currencies is usually controlled by a central bank, which decides when to mint new cash. Bitcoin, on the other hand, is completely independent. So how are new bitcoins created?
The answer is mining, a process in which powerful computers solve complex mathematical problems, in exchange for new bitcoins. In doing so, they also validate the latest batch of transactions and add them to the blockchain (more on that below).
Unlike fiat currencies, bitcoin also has a finite supply – there will never be more than 21 million BTC mined. However, the rate at which new coins are released by mining halves every four years, so we’re some time from hitting the 21 million cap.
The blockchain is a public digital ledger that contains a record of every BTC transaction ever made. When you buy or sell bitcoin, a new entry is made in the ledger that lets everyone know where the currency is stored now.
The mining process and public nature of the blockchain make it hard to tamper with, which keeps the crypto secure overall. However, as we’ve seen, individual accounts and exchanges can be far more problematic.
Bitcoin may be the first and biggest crypto, but it now has a staggering number of competitors, many hoping to usurp it as the global cryptocurrency of choice. Some of these ‘altcoins’ work in exactly the same way as BTC, some are designed to correct flaws in bitcoin’s structure – such as slow transaction speeds and energy consumption – and some use the blockchain in unique new ways.
How much does it cost to buy one bitcoin?
Bitcoin’s price is highly volatile, so the cost to buy a single BTC changes all the time. In 2021 alone, it went as high as $48,000 and as low as $23,000. You can see the crypto’s live price here.
However, most investors don’t buy an entire bitcoin. The cryptocurrency is broken down into fractions known as ‘satoshis’ that make it much more affordable.