Want to trade Bitcoin? Here is how to get started in Bitcoin trading.
Let's get this straight from the start, it's probably best that you stay well away from actual bitcoins. It's just far too early stage and there are too many companies claiming to be the "ultimate bitcoin exchange" then going belly up the next week.
However, chances are you have come across this article by typing into Google "how to trade bitcoin".
That in itself is a clue that it's probably best to stay away in the long term.
Where to compare cryptocurrency brokers?
You can compare all bitcoin brokers for trading here or read our reviews of the below:
- IG is the largest LSE listed broker offering bitcoin spread betting
- ETX Capital are another broker to offer spread betting on Bitcoin (see more)
- One of the biggest brokers to trade bitcoin with is: PLUS 500 (CFDs only)
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
If you think there is a trade in the market though and want to speculate on bitcoin without getting too involved. It makes more sense to trade on a derivatives product such as spread betting with someone like ETX. ETX Capital have been around since the 1960 as Monecor and are members of the London Stock Exchange. They specialise in spread betting. Spread betting allows you to speculate on the price of an asset by entering into a contract where the outcome is based on the difference between the opening and closing price of the underlying.
So, through ETX or other CFD trading platform and spread betting brokers you can trade bitcoin, without ever actually owning it. It's risky as you are trading on margin and just putting down a fraction of the trade value. So whilst in percentage terms you can make significant profits, you can also make huge losses quickly. Bitcoin is particularly volatile so make sure you fully understand the risks before you trade.
What are the risks of trading bitcoin?
If you want to know more about the risks of trading bitcoin you can read more here.
Buying and selling bitcoin instead of trading it
Sure there maybe a few places to buy and sell actual bitcoins. Revolut offers a wallet for buying and selling cryptocurrencies or Coinfloor, which was founded by some fairly well established and qualified people. They are also backed by big venture capital players like Passion Capital and some early Skype employees like Taavet Hinrikus. But that doesn't count for anything if the business is not run properly.
Spread betting on bitcoin is done on margin so it is possible to lose more than you hold in your account.
Although Plus 500 don't offer spread betting you can trade Bitcoin on CFDs which are pretty much the same thing except thing without the tax benefits.
You can open an account online with PLUS 500 here or just playabout with the Bitcoin chart below.
Can you make money trading Bitcoin?
The answer is, of course, yes and no. You can make money trading Bitcoin, if you buy low and sell high. Or, if you're a bear, sell high, buy low.
But if the question is "can YOU make money trading Bitcoin" I'm afraid the answer is probably no. The majority of people who trade highly volatile products like Forex tend to lose money. In fact, the recent regulatory changes have forced forex brokers to publicise the percentage of the clients that make money trading.
But just because most people lose money trading, it doesn't mean you will. But you probably will, especially if you are trying to make money trading Bitcoin, because unlike Forex trading, index trading or investing in the stock market, where the markets have fundamental value and are swayed by economic events, crypto trading is driven entirely by sentiment.
Which of course makes it harder to predict. And being such a volatile asset class means that crypto prices can move dramatically. A main market stock, for instance, may move 5% a day. An FX pair like EURUSD around 1%. But a crypto can double or half in the blink of an eye.
So, if you do think you can make money trading Bitcoin, be prepared to lose all your money doing so...
Don't get scammed by Bitcoin trading adverts.
From Peter Jones to PSY, new scam adverts advertising get rich quick Bitcoin schemes are flooding the internet.
Despite a global ban from Google on non-regualted brokers advertising derivatives products, they are still getting through. Amazingly you see them in the header of the DailyMail and other mainstream media websites.
What's shocking about this is that they all seem to point to the same scam and no-one has been able to shut it down yet?
Martin Lewis, the money-saving-guru from Money Saving Expert, recently sued Facebook because they failed to stop scammers using his image in scam ads for get rich quick Bitcoin schemes. Martin Lewis settled with Facebook for a £3m charitable donation in the end
Are there any genuine Bitcoin traders in the UK?
The answer is of course yes. There are many traders who trade Bitcoin. Some do it through spread betting where profits are tax-free. Other clients who want to offset CFD loses against their capital gains allowance may opt for CFDs.
If there is a Bitcoin trader who has a decent track record and wants to try and make some money by being a quasi-fund manager through social trading they'll be on an FCA regulated social trading broker line eToro or ayondo.
They will not, I repeat not, be marketing their services as a get rich quick scheme. In fact they are not allowed to advertise at all.
So if you see an advert for Bitcoin investing, it's a scam (unless it's from an FCA regulated crypto broker).
We're already written about how not to get scammed in crypto trading so won't go into that again.
But suffice to say, if it looks like a scam. It's a scam. And, always check the FCA register for any broker you deal with.
Keep in mind too though that the scammers make clone websites, of real brokerages to scam you. So, double and triple check any broker before sending money.
A quick google search can save you from being a victim.
Where can you get Bitcoin trading ideas and analysis online?
Never believe anyone who says they can make you rich or adopt trading as a career if you are a complete beginner.
Trading CFDs and spread betting are high-risk forms of investment and should only really be used for hedging and a small percentage of a self-managed investment portfolio.
However, if you do want trading ideas you can find news and analysis on Bitcoin here:
Bitcoin News & Trading Idea Sources
- Most brokers like IG, will have a bitcoin news page
- TradingView provides excellent crypto charts and lots of users post trading ideas.
Keep aware and don't get scammed...
How to trade Bitcoin and Ether through Exchange Traded Notes (ETNs)
If you want to trade cryptocurrencies like Bitcoin and Ethereum without actually owning Bitcoin and Ethereum you can use an on exchange-listed ETN or exchange-traded note.
We seem to talk about cryptocurrencies quite a lot, but they do highlight some interesting ways to trade.
Obviously, if you want to speculate on Bitcoin and Ethereum, you could use a spread betting and CFD broker like IG and just trade on an OTC basis. But, what if you actually want to trade an on exchange product?
If you want the security of trading an on exchange product Saxo Capital Markets offers access to a couple of cryptocurrency exchange-traded notes:
- Bitcoin Tracker One: Listed on Nasdaq OMX Stockholm, Traded in EUR and SEK
- Ethereum Tracker One: Listed on Nasdaq OMX Stockholm, Traded in EUR and SEK
The advantage of these trackers is that if you don't want leverage and don't want to deal with the messy business of actually owning cryptocurrencies you can still get leverage. You can also deal in smaller trade sizes.
If you do want leverage you can trade them through DMA CFDs and still go short. It's important to note though that ETNs are different to ETFs in that they are underwritten by banks rather than assets, so are subject to additional risk that can affect pricing.
Of if you don't want to touch cryptocurrencies with a barge pole, but would rather invest in blockchain technology, Saxo has highlighted 10 examples of companies that can give you exposure to the
IBM Co. – IBM:xnys
Overstock.com Inc. – OSTK:xnas
Square Inc. – SQ:xnys
Cboe Options Exchange – CBOE:xnys
BTL Group Ltd. – BTL:xtsx
Global Blockchain Technologies Corp. – BLOC:xtxs
MGT Capital Investments – MGTI: xnys
Bitcoin Group SE – ADE:xetr
Digital X Ltd. – DCC:xasx
Riot Blockchain Inc. – RIOT:xnas
NVIDIA Inc. – NVDA:xnas
Advanced Micro Devices Inc. - AMD:xnas
You can read more about these on Saxo Capital Markets Review Page.
Bitcoin CFDs - The Main Advantages & Disadvantages
What are Bitcoin CFDs?
Bitcoin CFDs allow traders to speculate on the price of Bitcoin without actually owning it. You are entering into an contract with your broker with your profit and loss based on the difference between opening and closing prices of the trade.
Where can you trade Bitcoin CFDs?
Like any other financial instrument you can trade Bitcoin through a CFD broker. You can compare CFD brokers here or view our cryptocurrency broker comparison table to see what brokers offer what cryptocurrency.
The two key things to look out for in a Bitcoin CFD broker are:
- Regulation - never trade with a broker that is not regulated by the FCA. You can search the FCA register for a brokers status here.
- Location - some European counties let local firms passport their regulation over to the FCA. So double check the firm has a real office with real staff in the UK. All Bitcoin brokers in our comparison tables are fully authorised and regulated by the FCA
This is very important because if you are trading with a firm that is not fully authorised and regulated by the FCA you will not be protected if things go wrong.
Main advantages of Bitcoin CFDs
- Simple to trade
- If you have a CFD account already, chances are your broker will already (or shortly) be providing access to Bitcoin. Just like trading forex, shares, commodities or the FTSE you should be able to trade Bitcoin CFDs in the same way.
- You don't actually own Bitcoins
- Seeing as most people don't really have a clue what Bitcoin is by trading CFDs the actual Bitcoin risk is with your broker. You are just speculating on the price. With Bitcoin CFDs you don't have to worry about your Bitcoins being stolen or lost.
- Trade on leverage
- Trading on leverage means that you can get far more exposure to trade than your account balance. For example, with IG, if you want to bet £1 a point that Bitcoin will continue to go up on the current price that would mean exposure of £10,604.42 But you only put down an initial margin payment which in this case would be £3,693.60. Initial margin is what a Bitcoin CFD broker would expect a days significant move to be.
- You can preset profits and losses
- By using stop losses or profit limits when you trade you can preset the maximum amount you are prepared to lose or set a price at which to take profits. This means that you don't have to be constantly monitoring the markets to close off your position. There are extra costs for guaranteed stops, which lock in your stop price even if the market crashes right through it.
- Bitcoin CFD brokers are regulated by the FCA
- As FCA regulated CFD brokers have their customer funds protected by the FSCS your money held on account with be refunded by the Government (up to a certain point). Where as Bitcoin exchanges are unregulated and if they go bust when you have funds on account with them it will be much harder to get all, if any of your money back.
Main disadvantages of Bitcoin CFDs
- Leverage is very risky
- Leverage is also a disadvantage to trading Bitcoin CFDs because your losses are multiplied. If you buy £10k worth of Bitcoin from an exchange and the price goes to zero you have spent and lost £10k. However, with leverage if you use £10k of margin to buy £30k of Bitcoin CFDs and the price goes to Zero you have lost your £10k plus another £20k. It is very important to understand the risks of margin trading CFDs and that you can lose more than your initial deposit.
- CFDs have expiry dates
- Bitcoin CFD contracts have expire dates, which means that at expiry your position will automatically close and not rolled over. So, you need to keep an eye on your positions, statements and trading account to ensure that your trades are still open. If you put on a position and don't check the details you can be sorely disappointment if you think you are making money but your trade has actually expired.
- Bitcoin CFD spreads can be wide
- This means the difference between the buy and sell price can be significant. As with all trading there is a bid (the price at which you can sell) and an offer (the price at which you can buy). The less liquid and more volatile a cryptocurrency, the wider the price will be in the underlying market. This in turn will be reflected in your Bitcoin brokers CFD bid/offer price. This is one way CFD brokers make money, but as more brokers add Bitcoin trading competition will increase and spreads narrow. But as Bitcoin is a fairly new and risky product for CFD brokers to offer the cost to trade will be high.
- Overnight financing charges can be high
- All CFD brokers charge over night financing for holding a CFD position from one day to the next. Overnight financing is normally based on a percentage from the LIBOR rate because your CFD broker is lending you money to trade. You put down an initial margin, the broker lends you the rest (or charges interest on the whole amount). Because if they are hedging the position they will have to buy the underlying asset. The more risky the product the higher the overnight financing charges will be. When it comes to Bitcoin CFDs, overnight financing rates can be very high.
- Tax on profits
- Unlike Bitcoin spread betting where profits are free of capital gains tax, when you trade CFDs you have to pay tax on your profits. The tax benefits of spread betting are unique to the UK, so if you are not a UK resident you don't get the break. However, if you do lose all your money trading Bitcoin CFDs then as they are eligible for capital gains tax you can offset the loses against your sensible investments. If you want to spread bet on Bitcoin you need a spread betting broker like IG (where you can also trade Bitcoin CFDs).
How to short Bitcoin and what are the risks?
As Steve Strongin, head of Goldman Sachs global investment research, suggested in a research note that as cryptocurrencies don't have any intrinsic value it's unlikely they will survive in the long run. We answer the question: How to short Bitcoin?
So, if you want to take advantage of cryptocurrencies decreasing in value, how do you short bitcoin and other major cryptos?
Here's a quick run down of how to short bitcoin and the major risks involved.
How do you short Bitcoin?
Firstly, in order to short bitcoin you need a cryptocurrency broker of some sort. You can't short Bitcoin through an exchange because you will need the broker to hedge the short exposure.
You can short Bitcoin through the following types of broker:
- Spread betting brokers: tax free profits
- CFD brokers: contracts for difference
- Futures broker: trade the CME bitcoin future
All three types of broker basically do the same thing, albeit in different ways. Spread betting, CFDs and futures allow customers to sell something before they own it. Essentially taking a speculative position on a market decreasing in value rather than investing in it.
Shorting bitcoin through spread betting is unique to the UK because of the Government's tax position (no capital gains tax).
Shorting Bitcoin through CFDs allows customers to enter a contract based on the different between the opening and closing price of the trade (in reality it's just like buying or selling stocks on margin).
Shorting Bitcoin through futures allows traders to use a direct market access broker to get better pricing and quick trade execution fills. Orders are worked live on the exchange such as the CME or CBOE.
The main advantages of shorting Bitcoin are that you can do so on leverage (have greater exposure than your account balance) and profit when the price of Bitcoin goes down.
However, there are some serious risks and disadvantages to shorting Bitcoin it's important to be aware of.
The main risks and disadvantages of shorting Bitcoin
- Your losses are unlimited. Unlike going long (buying) Bitcoin the furthest the price can drop is to zero. Which means you know your absolute risk. But when shorting Bitcoin the price can go up indefinitely, which means your losses are theoretically infinite.
- There are overnight financing costs to consider. With spread betting and CFDs, your broker will charge you overnight fees to carry a position over. This charge can be quite high as it is expensive for brokers to hedge Bitcoin exposure at the moment. With Bitcoin futures the financing charges are built into the contract month called the "cost of carry" which will be different from the underlying cash price. The futures price and the cash price will eventually come in line. Although, some brokers still charge financing fees.
- Currency risk. Although shorting Bitcoin is very volatile there is still a small currency risk between your local currency and the currency of your short Bitcoin position, which would normally be USD. If your local currency moves significantly against the Bitcoin currency position it will have an impact on your P&L.
- Illiquidity and volatility. When a currency is illiquid it means there is not that much of it around to trade. The more established an asset generally the more liquid the market is. So if you have a very large Bitcoin short position the market may not be liquid enough for you to close it. When traders try to close a large position in an illiquid market it becomes more volatile meaning it can be hard to close the position at a good price.