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If you have ever asked yourself, ‘where can I trade cryptocurrencies?’ then this is the article for you. We will outline the main options that are available when it comes to trading cryptocurrencies, as well as the considerations to bear in mind before opening a trading account.
In order to decide where to trade, we first need to look at your motivations. For instance, if your goal is to buy and hold the actual underlying cryptocurrency on a longer-term, then you will need a wallet to store your currency and you will need to work with an exchange where you can buy them. If you are planning to trade cryptocurrencies by speculating on their price movements without buying the actual asset, then a CFD provider such as Plus500 may be an option you would like to explore.
There are two main motivations for buying, selling and exchanging cryptocurrencies. The first motivator is if you believe in the long-term future of this asset class and if you want to gain exposure to the inevitable rising or falling of cryptocurrency prices as they become more commonly used.
The second motivator is if you want to use them as a fiat currency alternative. For example, Bitcoin and Litecoin are designed to eventually pay for everyday goods and services in the way we use dollars, euros or pounds today.
Cryptocurrencies are relatively volatile, especially when compared to more traditional asset classes such as forex pairs or commodities. Trading cryptocurrencies allows a trader to potentially take advantage of this volatility. The average daily volatility of the cryptocurrency market is several times higher than that of traditional assets, thus offering short-term traders much more opportunity to make money. But of course, the flip side to this is that bigger price movements can also mean bigger losses for traders. Those traders who are confident they will get it right more often than not are willing to take the risk and view cryptocurrency volatility as an opportunity.
Buying and selling an actual cryptocurrency, whether it is for long or short-term buying and selling, can only be done on a crypto exchange. However, any type of buying and selling of assets can be considered ‘trading’.
The term ‘trading’ is commonly applied to the practice of buying and selling frequently to take advantage of changing price trends - i.e., the classic ‘buy low/sell high’ model. In modern financial markets, CFD trading also allows you to trade on falling prices by taking ‘short’ positions.
If you want to ‘trade’ in cryptocurrencies as a longer-term investment, you would have to open an account with a cryptocurrency exchange. You are then able to buy your chosen cryptocurrency units online, move them to your own crypto wallet for safekeeping and move them back to the exchange when you want to sell.
Alternatively, if you want to ‘trade’ cryptocurrencies in shorter time frames, your best option would be to open an account with a CFD provider, like Plus500. CFDs are short term speculative products, so trading cryptocurrency CFDs is not for those wanting to make a long term investment.
The difference here is that when you trade cryptocurrencies via CFDs, you are not actually buying and selling the digital cryptocurrencies themselves, but opening Buy and Sell positions to speculate on their price movements. This has several major advantages if you want to trade on short-term price volatility.
If you buy and sell actual cryptocurrencies, you have to pay exchange fees. If you buy and sell regularly those fees can very quickly cancel out much of your profits or deepen your losses if you get your timing wrong. It also takes some time to confirm the purchase and sale of cryptocurrencies, so you wouldn’t be able to trade quickly if you wanted to, whereas with cryptocurrency CFDs you are able to open new positions relatively quickly based on how you think the market is moving.
Often, CFD trading platforms are compensated for their services through the market spread, which is the difference between the buying and selling price of an instrument. Spreads are usually smaller in value than exchange fees, as CFDs are designed for ‘day trading’ and it is expected that traders might place several trades in one day. There are other fees and charges that may apply when trading CFDs, depending on the provider. You should check the fees that apply before deciding on a provider.
CFD positions can be opened and closed almost instantaneously, so traders can quickly take advantage of market swings. Plus, as already mentioned, trading CFDs mean a trader can take a position on a price decrease just as easily as a price increase, which gives more flexibility and more trading opportunities.
Finally, trading cryptocurrencies via CFDs allow traders to use ‘leverage’. This means that they can multiply their actual trade size, depending on the CFD platform, jurisdiction and the type of trading account. Online CFD providers are typically compensated through the Ask/Bid spread. This means that even a relatively small price movement can lead to potential profits; of course, if a trader trades with leverage it will also multiply their potential losses.
If you believe that trading cryptocurrencies through CFDs are your preferred option, you can open an account with a CFD provider that offers cryptocurrency instruments, like Plus500.
In conclusion To help you find the best fit for you, Plus500 has curated a list of the characteristics of each option. You can refer to this list and make your choice accordingly.
|Crypto CFDs||Buying Crypto through Crypto Exchange|
|You want to trade on crypto prices without owning the cryptocurrencies.||You want to have full ownership of the cryptocurrency.|
|You want to trade on both upward and downward price movements (i.e. you want to trade in rising and falling markets).||You prefer to benefit from upward crypto prices only.|
|You prefer to trade with leverage, thus you pay a fraction of the price with the risk of higher losses.||You prefer to pay the cryptocurrency’s full value in advance.|
|You look for short-term trading opportunities.||You seek to hold the cryptocurrency for a longer time period and invest in it in the long run.|
*Instrument offering is subject to operator.