- International Asset Management • Est. 2016
Cryptocurrencies are digital assets, typically based on blockchain technology, that can be used for various purposes including online purchases, investment, and as a means of transferring assets across borders without the need for intermediaries like banks. They’re decentralised, meaning they operate on a network of computers rather than being controlled by a single central authority. On a trading level, this means they have 24/7 accessibility, as opposed to shares, for example, whose trading hours are linked to the exchanges on which they’re listed
When it comes to how to trade cryptocurrencies, cryptos can be traded through financial derivatives such as CFDs, which give leveraged exposure to the price movements of the underlying market, such as bitcoin and ether. It’s these movements that traders attempt to profit on when taking a position.
It’s important to understand that cryptocurrency CFDs are based on the price of the underlying assets, which are vulnerable to sharp changes in price due to unexpected events and fluctuating market sentiment. This often creates a high level of volatility, making cryptocurrency trading and leveraged CFDs risky in general.
Cryptocurrencies are important for a variety of reasons. Their decentralised nature means they are not controlled by any single government or financial institution, reducing reliance on traditional banking systems. This means individuals can participate in global financial transactions through borderless transactions, regardless of location or economic status.
Cryptos also often rely on blockchain technology, which creates the potential for security, transparency and immutability for transactions. Since transaction records are distributed across a network of computers, they are potentially more resistant to tampering or manipulation.
On the trading front, cryptos can offer a potential hedge against inflation, and opportunity to diversify alongside more risk-off assets for a balanced portfolio. That means that traders may find it suitable to hold historically volatile assets such as cryptos alongside assets regarded as more ‘safe’, lessening the effect of being exposed to single large price movements.
Like other asset classes, studying the economic calendar for the latest market-moving events may help you prepare for cryptocurrency trading.
Whether using CFDs, cryptocurrency trading enables you to trade with leverage, also known as trading on margin. This means you can control large positions with a relatively small amount of capital (the margin itself). However, leverage can also amplify losses, so it’s risky. This means it’s important to use it with caution and have a solid risk-management plan in place.
Cryptocurrencies on Meta-cap.com have a margin of 50%, meaning you only have to put down 50% of the total value of the trade, while being exposed to the price movements of the full position. The remaining 50% of the value of the trade is effectively advanced to you by us.
Let’s say you’re trading one CFD contract on a cryptocurrency at a price of $1,000. The total value of the trade is $1,000 (or currency equivalent), but you’ll only have to put down $500 (50%) as margin. If the price increases by 30 points to 1,030, you will earn the full $30 profit. Similarly, if the price fell by 30 points to $970, you will incur the full $30 loss.
Overall, how to trade cryptocurrencies with leverage will depend on your trading strategy, risk management strategy and market conditions, so ensure you have a comprehensive trading plan in place that explores each of these crucial factors
Traders may choose to speculate on cryptocurrencies for a number of reasons, ranging from diversification to liquidity to pure speculation. Here are a few of the more common ones.
Speculation: some trade a cryptocurrency purely to speculate on the direction of the overall market. This can be done using technical or fundamental analysis to make predictions about market movements. Due to many cryptos historically showing high volatility levels, many traders view speculating on them as a potentially high-profit endeavour. However, their volatility naturally means trading cryptos on leverage is risky and amplifies losses as well as gains.
Diversification: while there are more prominent and high-profile examples than others, cryptocurrencies represent a broad range of assets. Trading cryptocurrency prices live allows you to diversify and with more risk-on assets to enable exposure to a range of markets in your portfolio.
Liquidity: major cryptos like bitcoin and ether are highly liquid, meaning they see a high volume of trading activity. This liquidity makes it easier to enter and exit positions at desired prices. However, you should be aware that lesser-known and emerging coins often have a lack of liquidity, making them potentially more prone to slippage and higher spread costs.
Flexibility: gaining exposure to cryptocurrencies through leveraged trading can be more accessible and practical than owning the asset outright, since you only have to put down a percentage of the total value of the position, as well as being able to speculate on prices falling as well as rising.
Innovative products: trading cryptocurrencies means having relatively new, dynamic and highly technological assets in your portfolio. Since cryptocurrencies represent a fairly young market, those with a strong knowledge base of the industry and products may be better equipped to understand the factors that drive price movements than those trading assets in more mature markets.
There is a wide range of cryptocurrencies available to trade, such as bitcoin, ether and tether. Each of these has different properties that affect how they are traded, so it’s worth reading up on them and how they interact with each other in certain market conditions.
Now let’s say you want to trade the same CFD at the same price with the same sizing, but this time take a position on the price falling. You open a CFD trade short on bitcoin of 10 contracts, worth $4,000 or currency equivalent. With just a 50% margin required, you only have to put down $2,000.
Over a few hours, the price rises by 300 points to a price of 40,300 and you close the position.
You’ve made a loss of $30 (-$300/100 X 10), minus the spread cost and any additional fees.
You might want to trade a more liquid cryptocurrency like bitcoin to try and spread your risk vs other assets you’re trading. Or maybe you have specialist knowledge in a lesser-traded crypto that you feel gives you an edge when speculating on that market.
Whatever your preferred strategy, you can trade CFDs cryptocurrencies with Meta-cap.com by following these steps:
As with all of our markets, when you trade cryptocurrencies with us, you’ll pay a spread, which is based on the difference between the buy price and the sell price of the market. This is paid on the opening and closing of the trade. The buy and sell prices look like this:
You may also pay additional fees, for example if you use a guaranteed stop-loss or if you hold a trade overnight. As with all Meta-cap.com instruments, you won’t pay any commission when you trade cryptocurrencies CFDs.
It’s advisable always to make sure you’re aware of the cost of trading before you open a position
At Meta-cap.com, we’re proud to have won a range of awards from some of the leading authorities in the trading world. We’re rated Excellent on Trustpilot, and we’re always working to improve the experience of our 520,000+ clients. Here are just a few reasons to choose us for your cryptocurrency trading.
So why not join our growing customer base and trade cryptocurrencies CFDs with us today.
