Are you sure you want to spread bet on cryptocurrencies?
Serious Warning about Spread Betting and/or Trading CFDs on CryptocurrenciesOn spread bet magazine we are rather impartial to lot of different forms of trading but…a word of warning about spread betting, or trading CFDs, on Bitcoin and other cryptocurrencies:
If you spread bet, or trade CFDs, on cryptocurrencies like BTC then you can combine the worst of both worlds, i.e. high risk trading on highly volatile markets.
Trading cryptocurrencies is far from advisable.
See below for detailed examples of the risks you will face.
Live Cryptocurrencies Charts and Prices: Bitcoin, Ethereum Litecoin
Trading ExamplesBitcoin is currently trading around the $4,200 – $4,300 area, and on a quiet day, Bitcoin can move $40, i.e. a 2% move.
But it also sees some huge daily ranges e.g.:
These massive and unpredictable moves make the market very difficult to trade. It’s very easy to get on the wrong side of a swing.
Wide SpreadsNote that Bitcoin often comes with a spread of about 20 points ($20 for BTC). That’s a wide spread and with a market like EUR/USD you can get a spread of 0.7.
The spread is the difference between the buy and sell price… with a 20 point spread ($20 spread), the market needs to move 21 points ($21) before you can close for a 1 point profit…
Very Rough Trading ExampleImportant: If you do spread bet or trade CFDs then check the specifics with your platform provider (the company your trade with). They may run the market and their margin/leverage differently.
With spread bets and CFDs on cryptocurrencies you often trade per $1 move and with x30 leverage.
Let’s say you deposit £250, your platform provider may let you use 80% of that for trading, i.e. £200 to trade. The other 20% (£50) may be used a buffer on your account.
The leverage on crypto currencies is often around 30x (aka 1:30) which means the £200 will let you take a position worth £200 x 30 = £6,000.
If the market moves 2% you will win/lose 2% of £6,000 = £120.
However, let’s take some of the recent examples above, if the market moves:
And… these are just fairly recent one day moves on a £250 deposit.
Of course your spread betting firm or CFD broker should close your trade when you lose the £200 (this protects you and them) but that also means you won’t be keeping your trade open for very long and you’re more likely to be stopped out for a loss.
The above swings are just one day swings, if you a hold a trade for a few days your downside could be much worse.
Of course, you can big profits but with such volatile markets it’s good to have a long think about your downside.
Just to confirm, the above is not advice… it’s a friendly warning.
Put another way:
Get £500 from the cash point, take your partner out for dinner and drinks. Then go to the casino and blow the rest in there.
Or blow the rest on lottery tickets.
This will be a lot more fun and a lot less painful than trading on Bitcoin, Ethereum, Litecoin etc.
Warning About Gaps
Gapping can really hurt with the normal market let alone cryptocurrencies. Also see guide to market gaps.
Warning About Minimum Guaranteed Stop DistancesWant to protect yourself with a Guaranteed Stop? Good luck.
With cryptocurrencies you cannot set these very close to your opening trade.
E.g. with Plus500 the closest you can set a Guaranteed Stop loss order is 10% away from your opening trade. With a market like the FTSE 100 or USD/JPY it’s often only 1% away.
This is just another reason, and another warning, not to trade these markets
Also see guide to Guaranteed Stop Loss orders.
Initial Coin Offerings (ICOs)We’ve taken a quick look at ICOs here: Initial Coin Offerings.
Bitcoin and Cryptocurrency Market Views
12 October 2017: Bitcoin Hits $5,000 For the First TimeBearing in mind it traded around $1,300 on 1 May 2017, it can’t be long before more speculators get hurt with this overly volatile currency.
Above: 1 Hour and 1 Day Charts
10 October 2017: Putin Calls for Regulation of CryptocurrenciesPutin clearly is missing out on getting “his” cut of all funds going through Russia.
Also see Putin Backs Cryptocurrency Rules and Warns of ‘Serious Risks’.
20 September 2017: China Starts to Closes Bitcoin ExchangesYesterday Chinese authorities followed up on their 11 September warning that they were planning to close all Chinese Bitcoin exchanges.
The “authorities” have now ordered all Bitcoin exchanges in Beijing and Shanghai to close their operations by 20 September… i.e. today!
For more details see “China orders Bitcoin exchanges in capital city to close”
Personally I’m surprised:
14 September 2017: Don’t Say We Didn’t Warn YouYesterday, we received another stark warning on why investors should avoid Bitcoin.
It’s not so much that Jamie Dimon, JPMorgan CEO, said “[Bitcoin] is a fraud… it will blow up”, it’s the fact(s) that:
- While Jamie Dimon’s comments do carry weight in the financial markets, you don’t want to be speculating on a market that can move so easily on one person’s comments… particularly a person who has zero control over the underlying asset and isn’t even that closely connected to the market in question.
- There has been an inexplicable rise (mini bubble) that hit $4,956 on 2 September 2017.
Then there was an equally fast fall to the current level of $3,746, i.e. a $1,210 fall… a 24.4% fall in just 11 days…
- The single day falls look like they are specifically designed by a higher power to catch out investors:
13 September 2017: UK Regulator: “Be Prepared to Lose Your Entire Stake”The UK regulator has come out against initial coin offerings (ICOs).
In a clear warning, the FCA issued a statement saying:
ICOs are very high-risk, speculative investments…For more, see Bitcoin investors could lose all their money, FCA warns.
You should be conscious of the risks involved… and prepared to lose your entire stake.
11 September 2017: Beijing Planning to Shut Bitcoin ExchangesChinese authorities are planning to ban public trading of Bitcoin.
For more details on the ban see Beijing set to shut bitcoin exchanges to ensure price stability.
Why is China So Central to Bitcoin?According to bitcoinity.org, Bitcoin exchanges in China, including BTC China, Huobi and OKCoin accounted for roughly 98% of all BTC trading in the H2 2016.
For H1 2017 that number has fallen to 18% due to a crackdown by authorities.
It’s not a surprise that China is key to Bitcoin. With such strict controls over the renminbi, aka Chinese yuan, many people use cryptocurrencies to move their funds.
4 September 2017: China Bans Initial Coin OfferingsMore bad news for cryptocurrency traders.
Chinese authorities have banned companies raising money by offering digital currencies or digital tokens, i.e. they’ve banned initial coin offerings.
Also see China bans initial coin offerings sending Bitcoin price tumbling.
Where to Spread Bet and Trade CFDs on Bitcoin, Ethereum and other Cryptocurrency Markets?Firstly we really don’t recommend trading any of these markets.
If you really must then as of July 2017:
IG offer spread betting and CFDs on: See IG for more.
Plus500 offer CFDs on: Click on the above chart for more details on Plus500 and their cryptocurrency markets.
Remember: Spread betting, CFDs and forex trading carry a high level of risk. You can lose more than your initial investment. These products are not suitable for all investors. Only speculate with money that you can afford to lose. Make sure you fully understand the risks involved and seek independent financial advice where necessary.