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How to Buy, Sell and Trade Cryptocurrencies

Date Modified: 02/06/2024

There is a difference between buying/selling cryptocurrencies on an exchange and trading cryptocurrency CFDs on a CFD platform like Plus500. Both activities are undertaken with the intention of making a profit by trading in the crypto market, but the processes involved are very different, and so are the advantages and disadvantages. This article describes how to buy and sell cryptos, as well as how to trade cryptocurrency CFDs.

First, before getting down to the nitty-gritty of cryptocurrency buying through an exchange and trading cryptocurrency CFDs, let us take a look at the overarching differences between the two options:

Cryptocurrency CFDs

Crypto Exchanges

Potentially more security and protection from hacker attacks since you don’t own the cryptocurrency. Instead, you trade CFDs on the prices of cryptocurrencies.

You have to save your cryptocurrencies in “crypto wallets.” This may mean that your crypto can become more prone to hacking attacks.

CFDs are leveraged derivatives. This means that you may maximize your gains with a smaller initial margin. However, this also means that your losses can be also magnified.

No leverage.

Ability to trade on upward and downward price changes: When trading cryptocurrency CFDs, you can either go long or buy when there’s a bullish crypto market or when there’s a bearish price movement, you can go short and sell.

You only profit from the increases in the prices of your cryptocurrency.

No actual ownership of the cryptocurrency.

You get full ownership of the cryptocurrency.



What is your Motivation for Trading Cryptos?

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.

To Buy or to Trade Cryptocurrencies?

Buying and selling digital cryptocurrencies is basically all about using one cryptocurrency, such as Bitcoin, to exchange it for another cryptocurrency, such as Ethereum, on a buy or sell basis, working on a cryptocurrency exchange. The process involves looking for a cryptocurrency pair in order to perform a crypto-to-crypto exchange or exchanging crypto for fiat or fiat currency for cryptos. The transaction is done twice, and in opposite directions to complete an exchange cycle with the goal of profiting from the exchange.

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.

What Are My Cryptocurrency Trading Options?

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.

Cryptocurrency Exchanges

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.

CFD Trading Platforms

Alternatively, if you want to ‘trade’ cryptocurrencies in shorter time frames, you may consider opening 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.

Coins of Bitcoin, Ethereum and Litecoin.

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.

Making Deposits and Withdrawals When Trading Cryptocurrencies

Cryptocurrency exchanges usually accept deposits and withdrawals in two ways. A small number of exchanges (mostly found in the US and UK) accept fiat currency deposits or a mix of fiat and cryptocurrency methods. However, the majority of exchanges across the world accept crypto-based methods of transaction, due to restrictions placed by banks on such exchanges in operating bank accounts. If the exchange only accepts cryptocurrency deposits/withdrawals, the trader must additionally create a third party wallet for the cryptocurrency to be used in performing the deposits. The most common cryptocurrencies used for deposits are Bitcoin, Ethereum and Litecoin.

To deposit funds, one would need to purchase BTC, ETH or any other deposit cryptocurrency from third-party sources and have it transferred to their third-party wallet. The funds are then transferred from this wallet to the wallet provided by the crypto exchange for depositing that cryptocurrency. If you choose to use this method, you should ensure to enter the wallet addresses properly when conducting the transactions, as any crypto transferred to a wrong address cannot be recovered.

Once your exchange wallet has been credited, you can buy and sell cryptos by trading the pairs that contain the deposit currency you have chosen. BTC and ETH usually have the largest number of pairings on any exchange, so you will not be short of what to trade on the exchange. You will be able to use Limit orders (‘Close at Profit’), Stop Loss orders (‘Close at Loss’), or future orders to Buy/Sell your preferred digital cryptos.

WebTrader screen of Litecoin and 3 standing cryptocurrencies: Bitcoin, Litecoin and Ethereum.

Illustrative prices.

Starting To Trade Cryptocurrency CFDs

If you believe that trading cryptocurrencies through CFDs is your preferred option, you can open an account with a CFD provider that offers cryptocurrency instruments, like Plus500.

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.

Where Can I Trade Cryptocurrency CFDs?

Trading of cryptocurrency CFDs is done via online platforms of CFD issuers such as Plus500. The trader needs to open an account by filling out an online form. Identity and residence address verification is a compulsory regulatory requirement. Funds can only be deposited into the CFD trading account using fiat currency methods through various payment methods.

How Are Deposits and Withdrawals Made When Trading Cryptocurrency CFDs?

Brokers that offer cryptocurrency CFDs can only accept fiat currency methods for deposits and withdrawals. Therefore, it will be common to see bank wire options, credit/debit cards and/or e-wallets, such as PayPal, Skrill, Bank Transfer, and Blik being used for transactions on these platforms. Funds must be transferred from sources that bear the account holder’s name, as anonymous funding is not permitted. Third-party payment methods are also not allowed. Each deposit channel has transaction limits. Bank transfers usually have an unlimited capacity for deposits and withdrawals, but bank cards and e-wallets can have limits defined by the CFD provider.

The Process of Trading Cryptocurrency CFDs

After your CFD trading account has been funded using one of the deposit options listed on the provider’s website or platform, you can trade cryptocurrency CFDs bi-directionally. In other words, you can benefit from rising prices by buying low and selling high, or you can benefit from falling prices by selling high and exiting low. Vice versa, positions would close at a loss if market prices move against you. You can either trade at current prices, or you can use the function of the future order to trade when the instrument reaches a specified price.

Conclusion

You can engage with the cryptocurrency market in two ways: either by buying/selling on a cryptocurrency exchange or by trading cryptocurrency contracts on an online CFD platform. If you are interested in exploring the latter option, it takes only a matter of minutes to open a demo CFD trading account with Plus500, where you can then select your preferred crypto-based instruments from the wide offering that is available.

*Instrument offering is subject to operator.

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