Exploring Cryptocurrency Trading
Cryptocurrency trading encompasses the acquisition and divestment of digital currencies on an exchange platform.1 Through our services, you can engage with crypto markets by predicting their price fluctuations using Contracts for Difference (CFDs).
CFDs represent leveraged financial derivatives, meaning you can speculate on the upward or downward movement of cryptocurrency values without taking physical ownership of the underlying digital coins.2 When engaging in derivative trading, you have the option to take a ‘long’ position (buying) if you anticipate a cryptocurrency’s value will increase, or a ‘short’ position (selling) if you expect it to decline.3
In contrast, when one directly purchases cryptocurrencies via an exchange, they are acquiring the actual digital coins. This typically necessitates opening an exchange account, committing the full asset value to initiate a position, and securing the cryptocurrency tokens within a personal digital wallet until such a time as you wish to sell them.4
How Digital Currency Markets Operate
The cryptocurrency market functions as a decentralised digital currency ecosystem, operating via a peer-to-peer verification system rather than relying on a central server.5 All transactions involving the buying and selling of cryptocurrencies are recorded onto the blockchain – a distributed digital ledger that logs data – through a process known as ‘mining’.6
Influences on Cryptocurrency Market Dynamics
Cryptocurrency markets are fundamentally driven by the interplay of supply and demand.7 However, due to their decentralised nature, they generally exhibit resilience against many of the macroeconomic and political factors that impact conventional fiat currencies. While considerable uncertainty persists around cryptocurrencies, several key elements can profoundly affect their valuations:
- Availability: This includes the total quantity of coins in circulation and the speed at which new coins are introduced, or existing ones are permanently removed or lost.
- Market Capitalisation: Represents the aggregate value of all existing coins and how participants perceive its future growth.
- Media Coverage: The depiction of a cryptocurrency in the press and the volume of media attention it garners.
- Operational Integration: The ease with which a cryptocurrency can be integrated into existing transactional frameworks, such as e-commerce payment gateways.8
- Significant Occurrences: Major events like regulatory shifts, security breaches, or wider economic downturns.
Why Engage in Cryptocurrency Trading?
Cryptocurrencies are renowned for their inherent volatility.9 For traders employing leveraged derivatives, which facilitate both long and short positions, these substantial and abrupt price swings present potential profit opportunities. Concurrently, however, such movements elevate exposure to risk. In essence, heightened market volatility correlates directly with increased trading risk.10
With our platform, you can participate in cryptocurrency trading via a CFD account – these derivative products enable you to speculate on whether your chosen cryptocurrency will appreciate or depreciate in value.11 Prices are denominated in traditional currencies, such as the US Dollar or British Pound, and you never assume direct ownership of the cryptocurrency itself. CFDs are a leveraged instrument, meaning you can initiate a position with only a fraction of the trade’s total value.12 While leveraged products can amplify your gains, they can also magnify losses if market conditions turn unfavourable.13
When trading cryptocurrencies through our service, you benefit from:
- Live Pricing Access: Our pricing is derived from multiple exchanges and updated continuously in real-time.
- Market-Reflective Quotations: Our prices accurately mirror the sentiment of the underlying market, as they are based on live, real-world data.
- Derivative Trading: Utilising our CFD account means you bypass the need to own actual cryptocurrencies, eliminating the requirement for an exchange account or a personal digital wallet.14
- Market Hedging Capabilities: CFDs allow you to take short positions, enabling you to offset potential losses on existing cryptocurrency holdings.15
- Competitive Spreads: We strive to maintain some of the tightest spreads available in the market.
- Continuous Charting Tools: Our acclaimed platform offers sophisticated HTML5 charts, complemented by a range of advanced indicators and drawing functionalities.
- Swift Entry and Exit: Thanks to narrow spreads and rapid execution, CFDs facilitate quick trade entry and exit.16
- Leveraged Trading: CFDs provide full market exposure with a significantly reduced initial outlay compared to directly purchasing cryptocurrencies.17 However, it is vital to note that CFD trading carries a high risk of rapid capital loss due to leverage.18
- Secure Platform Environment: Measures such as two-factor authentication (2FA) are available to enhance the security of your online trading activities.19
Selecting a Cryptocurrency for Trading
Through our platform, you can engage in CFD trading across 11 prominent cryptocurrencies, two crypto cross-pairs, and a dedicated crypto index – an index tracking the performance of the top ten cryptocurrencies weighted by market capitalisation.
Our current selection includes, but is not limited to:
- Bitcoin20
- Ether
- Bitcoin Cash
- Litecoin
- EOS
- Stellar
- Cardano
- Bitcoin Cash/Bitcoin
- Ether/Bitcoin
- Crypto 10 Index
- Chainlink
- Polkadot
- Dogecoin
- Uniswap
Understanding and Trading CFDs
Opening a CFD Trading Account:
Establishing a CFD trading account typically requires only a few minutes.21 There is no obligation to deposit funds until you are prepared to commence trading. We have been providing traders with access to leading financial markets since 1974 and are a constituent of the FTSE 250 index.
Identifying Your Crypto Trading Opportunity:
- Leading Cryptocurrencies: Trade a curated selection of the world’s foremost cryptocurrencies or our comprehensive Crypto 10 index.
- Ubiquitous Trading: Execute trades seamlessly on our award-winning trading platform and accompanying mobile application, regardless of your location or time.22
- Technical Analytics: Leverage in-platform analytical tools like MACD (Moving Average Convergence Divergence) and Bollinger Bands to identify price trends and potential trading signals.
- Expert Commentary: Access both technical and fundamental market analysis from our in-house team of specialists.
Deciding on a Long or Short Position:
- ‘Going Long’: This strategy is adopted when you anticipate an increase in the cryptocurrency’s value.23 In such a scenario, you would opt to ‘buy’ into the market.
- ‘Going Short’: Conversely, this strategy is employed when you expect your chosen cryptocurrency’s price to decline.24 Here, you would choose to ‘sell’ the market.
Implementing Risk Management and Placing Your Trade:
Given that your position is opened on margin, you face the potential for rapid losses if the market moves unfavourably.25 To aid in mitigating this risk, you can specify a stop-loss level within the deal ticket.26 If triggered, the stop-loss order will automatically close your position, thereby limiting your potential loss.27
To safeguard any profits should the market move in your favour, you can also establish a limit level. In this instance, your trade will be automatically closed to secure positive returns as soon as the market reaches your pre-determined price.
It’s important to recall that, when trading CFDs, each contract stipulates a specific value per point of market movement.28 For example, if a CFD is valued at $10 per point, and the underlying cryptocurrency’s price shifts by 10 points, your profit or loss – prior to accounting for any costs – would be $100 per contract.29
Once you have defined the number of CFDs you intend to trade, along with your desired stop-loss and limit levels, you initiate your position by clicking ‘place trade’.
Monitoring and Closing Your Position:
When you determine it’s time to close a position, navigate to the ‘Positions’ tab on the left-hand menu. Select ‘Close position’ and indicate the number of contracts you wish to close. Alternatively, you can open the market’s deal ticket and execute the opposing trade to your open position – for example, if you initially bought CFDs to open, you would now sell, and vice versa.30
Illustrative Example: Trading Ether CFDs
Following a comprehensive analysis of Ether’s price movements, you conclude that the market is likely to trend upwards from its current level of 3200. Consequently, you opt to take a long position using CFDs. Since you are going long, you initiate your position by choosing to ‘buy’.
In this example, after an 8-point spread is applied – and excluding other associated costs – the buy (or offer) price is established at 3204, while the sell (or bid) price is 3196. The CFD you utilise specifies an amount of $1 per point of market movement, and you elect to trade 10 contracts. This brings your total market exposure for the position to $32,040 ($3204 x $1 per point x 10 contracts).
However, as positions on Ether CFDs can be opened with a margin deposit of 50%, you would only need to deposit $15,020.31 At this juncture, it is crucial to recognise that because your exposure significantly exceeds your required margin, you stand to lose more than your initial deposit if the market moves against your prediction. Therefore, to effectively manage your risk, you might set a guaranteed stop loss at 3000, which automatically closes your trade at that precise price.
Suppose the market performs as you anticipated, ascending to a level of 3500. At this point, you decide to close your position and realise your profit. The sell (or bid) price, after the spread is applied, is 3496. The price differential between 3496 and 3204 is 292 points. This, exclusive of other costs, results in a profit of $2920 on the trade – representing a 19.4% return on your margin deposit.
Conversely, imagine the market declines and reaches your guaranteed stop-loss level, resulting in your position closing at 3000. In this scenario, the price difference is 204 points, meaning you would incur a loss of $2040 (13.6% on your margin deposit), in addition to any premium charged for the guaranteed stop-loss being triggered.