When you trade cryptocurrencies with your Broker, you are speculating on whether your chosen market will rise or fall in value, without ever taking ownership of the digital asset. This is done by using derivative products such as CFDs.
The benefits of cryptocurrency trading include:
Although the cryptocurrency market is relatively new, it has experienced significant volatility due to huge amounts of short-term speculative interest. For example, between October 2017 and October 2018, the price of bitcoin rose as high as $19,378 and fell to lows of $5851. Other cryptocurrencies have been comparatively more stable, but new technologies are often likely to attract speculative interest.
The volatility of cryptocurrencies is part of what makes this market so exciting. Rapid intraday price movements can provide a range of opportunities to traders to go long and short but also come with increased risk. So, if you decide to explore the cryptocurrency market, make sure that you have done your research and developed a risk management strategy.
Cryptocurrency market hours
The cryptocurrency market is usually available to trade 24 hours a day, seven days a week because there is no centralised governance of the market. Cryptocurrency transactions take place directly between individuals, on cryptocurrency exchanges all over the world. However, there may be periods of downtime when the market is adjusting to infrastructural updates, or ‘forks’.
With your broker, you can trade cryptocurrencies against fiat currencies – such as the US dollar – from 4am Saturday to 10pm on Friday (GMT).
Liquidity is the measure of how quickly and easily a cryptocurrency can be converted into cash, without impacting the market price. Liquidity is important because it brings about better pricing, faster transaction times and increased accuracy for technical analysis.
In general, the cryptocurrency market is considered illiquid because the transactions are dispersed across multiple exchanges, which means that comparatively small trades can have huge impact on market prices. This is part of the reason cryptocurrency markets are so volatile.
However, when you trade cryptocurrency CFDs with your broker, you can get improved liquidity because we source prices from multiple venues on your behalf. This means that your trades are more likely to be executed quickly and at a lower cost.
Ability to go long or short
When you buy a cryptocurrency, you are purchasing the asset upfront in that hope that it increases in value. But when you trade on the price of a cryptocurrency, you can take advantage of markets that are falling in price, as well as rising. This is known as going short.
For example, let’s say that you have decided to open a short CFD position on the price of ether because you believe that the market is going to fall. If you were right, and the value of ether fell against the US dollar, your trade would profit. However, if the value of ether rose against the US dollar, your position would be making a loss.
As CFD trading is a leveraged product, it enables you to open a position on ‘margin’ – a deposit worth just a fraction of the full value of the trade. In other words, you could gain a large exposure to a cryptocurrency market while only tying up a relatively small amount of your capital.
The profit or loss you make from your cryptocurrency trades will reflect the full value of the position at the point it is closed, so trading on margin offers you the opportunity to make large profits from a relatively small investment. However, it can also amplify any losses, including losses that could exceed your initial deposit for an individual trade. This is why it is crucial to consider the total value of the leveraged position before trading CFDs.
It is also important to make sure that you have a suitable risk management strategy in place, which should include the appropriate stops and limits.
You might be interested in buying cryptocurrencies if…
- You want to take full ownership of the cryptocurrency
- You’re happy to pay the full value of the asset upfront
- You want to gain direct exposure to one underlying exchange per account
- You’re happy to wait for an exchange account before you can buy or sel
- You don’t mind introductory limits or maximum deposits
- You don’t mind paying additional fees for deposits or withdrawals
You might be interested in trading cryptocurrency CFDs if…
- You want to speculate on the price of a cryptocurrency without owning the digital asset
- You want to leverage your position, so that you only put up a fraction of the cost upfront
- You want to take advantage of the tax benefits of CFD trading
- You want to gain exposure to multiple exchanges from one account
- You want to start trading straight away
- You don’t want a maximum deposit limit
- You don’t want to pay deposit or withdrawal fees