Want to spread bet on cryptocurrencies? Think again…please.
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 and more
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.
Where to Trade Bitcoin, Litecoin & Ethereum?Please read our view on is this the Least Stupid Way to Trade Bitcoin, Litecoin & Ethereum?
Also see Where to Spread Bet and Trade CFDs on Bitcoin, Ethereum and other Cryptocurrency Markets?
Bitcoin and Cryptocurrency Market Views
12 December 2017: If You Really Want to Speculate on the Bitcoin Bubble…warning Don’t spread bet or trade CFDs on Bitcoin, Litecoin, Ethereum or any other cyrpto.
Revolut have added a new exchange where you can buy, sell and hold the above.
The key is that Revolut exchange isn’t leveraged.
warning It’s still a stupidly risky investment but going through this kind of exchanged means that:
thumb_up If you lose £100, you lose £100 (not a multiple of £100)
thumb_up You won’t get stopped out by the hideous volatility
Also see Is this the Least Stupid Way to Trade Bitcoin, Litecoin & Ethereum?
12 December 2017: Market Manipulation, Electricity Usage and Why Bitcoin Could CrashBelow, a very useful 8 minute video highlighting easons for why Bitcoin could crash.
info Please watch this if you have invested, or are thinking of investing, in a cryptocurrency – it highlights some of the limitations that could bring the market crashing down.
I’ve always been of the view that the “currency” will become unworkable because the blockchains will get so long that transaction rates simply won’t be viable.
Of course, you also have all the miners validating the transactions and their electricity usage is going through the roof.
warning That usage (and cost!) is getting extreme.
(and yes, unworkable blockchain lengths and electricity usage are related).
As Motherboard wrote in November, one bitcoin transaction now uses as much energy as your house in a week.
The video below covers this issue and more:
8 December 2017: Bitcoin Worth $80m Stolenwarning warning Putting bubble issues to one side, a fresh reminder of another big Bitcoin risk.
4,700 Bitcoin have been stolen from a “leading mining service”, NiceHash,
For more on this see Millions ‘stolen’ in NiceHash Bitcoin heist.
Bitcoin isn’t the only crypto that is vulnerable to theft.
info 3 weeks ago, $31m was stolen from a “Tether” crypto-currency operator. More on this on BBC.co.uk.
8 December 2017: Bitcoin Hits $17,000BTC has hit $17,000 and dropped back to $14,000… you have been warned!
7 December 2017: And Bitcoin Hits $14,000 Ahead of CME Exchange Listingwarning Bitcoin has set new records and is now trading above $14,000.
Note that buying AND volatility could increase with Bitcoin expected to launch on the CME and NASDAQ futures exchange later this month.
According to Michael Hewson, Chief Market Analyst, CMC Markets:
The mania surrounding the cryptocurrency shows no signs of abating.
In fact, the number of people calling Bitcoin a bubble… also turning into a bubble.
Of course, as the current US stock market move is showing us, a bubble can keep expanding for much longer than many think.
warning warning If you spread bet on Bitcoin you are combining high risk trading with an extremely volatile market – this is a recipe for disaster.
If you must trade a cryptocurrency choose a product with no leverage, i.e. don’t use spread bets or CFDs.
30 November 2017: Spread Betting and CFD Brokers Concerned About Bitcoin LossesSome of the bigger brokers that offer Bitcoin are getting rather concerned about the amount of money they could lose…
info Remember – if clients can’t afford to pay the spreads companies (due to the clients losing too much on the volatility) then the brokers will still owe the debt to the liquidity providers.
info Remember that in January 2015, the Swiss National Bank removed the Swiss franc currency peg with the euro, EUR/CHF dropped +20% and that led to massive losses for many operators:
thumb_down IG lost £30m
thumb_down FXCM racked up client debts of $225m
thumb_down Alpari went bust. info The current version of Alpari isn’t UK regulated – they are regulated by the “Financial Services Authority of Saint Vincent and the Grenadines”!
Anyway…the good news is that it’s much more difficult to trade Bitcoin.
E.g. Plus 500, who have offered the market for a long time, now offer it with almost impossible trading limits:
info Margin – has increased to 50% (just x2 leverage) “This is a temporary measure to address recent market volatility. We will return the margin to our normal level as soon as possible.” You can normally trade the FTSE 100 with x200 leverage (a margin rate of 0.5%).
info Wide spreads – the $208 spread at the current price of $9,848 is a whopping 2.1% spread. With Financial Spreads, InterTrader, City Index etc. you can normally trade the FTSE 100 with a 0.1% spread.
info Overnight financing – now at 175%! That’s beyond penal. The normal overnight financing rate for most markets and most FCA regulated Spread Betting firms is a fairly reasonable 2.5%. Yes, that’s 175% vs 2.5%. See Bitcoin overnight financing example.
thumb_up Plus 500 clearly don’t want anyone to trade this market. Great!
warning IG are also saying that they many not open new orders (because their own internal risk management limits wont allow new liabilities).
Also see a new FT.com article on IG limiting some Bitcoin trades.
warning If IG, the world’s largest online trading platform, is worried about the volatility of a particular market, you should be too!
Bitcoin Overnight Financing at 175%!warning Yes, that’s 175%. A $1/pt buy of Bitcoin around $9,500 and 175% overnight financing = $91/night charge.
Again, that 175% is completely out of kilter with the 2.5% that is the industry norm.
See more on overnight financing.
29 November 2017: Electronic Tulips Sail Through $10,000trending_up This morning Bitcoin sailed through $10,000 and hit $10,849.
Taking the somewhat arbitrary midnight price of $9,856, that’s a 10% rise ($993) to $10,849.
But the story never ends there with this market.
trending_down It took just 25 minutes for Bitcoin to wilt to $10,058, yes, the market dropped $791 (7.3%) in 25 minutes.
There’s no such thing as ‘limit down’ protection for investors with cryptocurrencies like there is with the S&P 500 and Dow Jones.
trending_up Of course, it hasn’t taken long, just 4 hours, to climb up $677 at $10,735… another 6.5% swing.
warning If you spread bet on this market (or use CFDs), you will get hurt.
Chart of Bitcoin moving through $10,000
Bitcoin is Different to Tulips (But Not in a Good Way)info Bloomberg has put out an interesting chart of Bitcoin vs NASDAQ (see below).
I like the warning that the FT and Bloomberg are trying to give out.
However… if we’re talking bubbles then unlike tulips, with Bitcoin you won’t have to worry about what price to sell at.
You don’t have to predict the price / time of the final market blow out.
thumb_down Your funds will be long gone before that. The wild swings will take care of that for you.
27 November 2017: New Prediction as Bitcoin Trades above $9,500warning We could see the cryptocurrency hit $10,000 soon.
It’s not difficult to imagine Bitcoin hitting $10,000 and having a blowout where it crashes $1,000 or $2,000… and then probably rebounding.
It’s just as easy to see BTC sailing through $10,000 and for the “currency” to just keep on going… albeit with the usual ridiculous levels of volatility…
mode_comment What we can predict though, with a reasonable degree of certainty, is that many people trading BTC will get hurt in the extreme volatility that comes with cryptocurrencies.
If in doubt, avoid spread betting (or CFD trading) on Bitcoin like the plague… the combination of extreme volatility with high risk trading makes it almost impossible to trade successfully.
17 November 2017: Bitcoin Tops $8,000 in More Extreme TradingIn a rocky 10 days for Bitcoin (when isn’t it rocky?) the currency has dropped from $7,888 on 8 November, to $5,799 on 12 November, and bounced to a new all time high of $8,006 today.
Not as smooth as it looks
The intra moves are probably still the ones that hurt most people though. The market is easily swinging $500 up AND down in a single day:
yep… $500 up and down in under a day.
14 November 2017: UK Regulator Calls Bitcoin Trading “extremely high-risk, speculative products”The FCA has warned against CFD trading on Bitcoin and quite right too.
(Note that from a regulatory point of view, “CFDs” cover “financial spread betting” so if you read up on this, please remember that are also warning against Bitcoin spread bets).
The fact that the FCA has called Cryptocurrency CFDs “extremely high-risk, speculative products”… doesn’t really cover it.
They should have been clearer and said:
Don’t use leveraged products to trade Bitcoin, you will only get hurt.Or perhaps:
Want to spread bet on Bitcoin? You are more likely to make money by replying to the African Prince who has just emailed you.
24 October 2017: Video on How You Could Spread Bet on BitcoinBelow, a quick look at the current Bitcoin market.
I normally like Zak Mir’s fairly measured trading views but in this case I really disagree with trading Bitcoin at all.
Also Zak talks about using small stakes like £1/point.
Just to confirm, a £1 per point spread bet on Bitcoin still creates a big risk.
After 4m:31s the video moves onto gold, the FTSE 100 and USDJPY.
20 October 2017: And Bitcoin Hits $6,000 For the First TimeThat was quick.
The currency designed to hurt investors has now hit $6,000.
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 December 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.
Revolut let you buy, hold and sell: Go to Revolut.
Revolut does not offer spread bets or CFDs. So this might be a better way to trade, also see is this the Least Stupid Way to Trade Bitcoin, Litecoin & Ethereum?
Initial Coin Offerings (ICOs)We’ve taken a quick look at ICOs here: Initial Coin Offerings.
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.