Trade Bitcoin & Other Crypto-Currencies CFDs On High Leverage Up to 500: 1

Blockchain Technology:
Cryptocurrencies are often confused with blockchain. Yet blockchain technology is essentially a shared computer system infrastructure which forms a decentralized network, which cryptocurrencies utilize. Whilst it is cryptocurrencies which forced blockchain into the limelight, blockchain has many other uses which companies are exploring, but is outside the scope of this introduction.

The future of Crypto:
What excites many about the future for crypto is how it could become the main method of payment. In its earlier days it was widely critiqued as a method of payment, as it was assumed to be used by criminals on the dark web to evade the usual anti money laundering protocols. But, in recent years, it has become a more widely accepted method of payment for legitimate businesses and people. Cafe’s, online stores and even some shops now accept cryptocurrencies as a form of payment, although some crypto’s are more popular than others.

Bitcoin:
It is generally agreed that Bitcoin was the original decentralized cryptocurrency, launched in 2009 by a pseudonymous developer called Satoshi Nakamoto. As recognition of crypto payments has increased, so has the number of digital currencies (which are in the hundreds and possibly in the thousands). Yet it is Bitcoin which remains the most popular, appeared in the most headlines and been discussed among people from all walks of life (who don’t trade) due to its breath-taking rallies and market crashes.

So, what does this have to do with trading?

Large Speculators Enter the Ring:
If a market moves, it catches the eye of speculators. And cryptocurrencies have a tendency to be volatile, which makes it even more appealing to some traders. Yet for even seasoned investors, digital currencies are difficult to find ‘intrinsic value’, with some arguing that they are a priceless commodity and others adamant they will go to zero.

Even with fund managers, hedge funds and institutions speculating on crypto, the problem remained that platforms which offered digital currencies catered for payments and not speculators. Features such as stop loss, take profit, leverage and the ability to trade short were not available, which are common features professional traders required.

Therefore, it was only a matter of time before CME were to launch bitcoin as a tradable futures contract. This allowed professional traders to speculate on the wild fluctuations of bitcoin, trade long, short or hedge their crypto holdings.

Bitcoin Futures Aren’t for Everyone:
Whilst the introduction of crypto futures were an important step for speculators, large margin requirements, high prices and volatile fluctuations priced out most traders who didn’t have millions in their trading account. Yet this has paved the way for cryptocurrency CFDs (contract for difference) to be created which fixed these problems and opened crypto speculation up to retail traders.

Long example: Bitcoin (BTCUSD)
A trader buys 1 contract of BTCUSD (1 bitcoin) at USD $10,600

• If the prices rise to $12,000 the trader could exit for a profit around $1,400
  • (# contracts x contract size) x (exit price – entry)
  • (1 x 1) x ($12,000 – $10,600)

• If prices fall to $9,995 the trader could exit for a loss around -$605
  • (# contracts x contract size) x (exit price – entry)
  • (1 x 1) x ($9,995 – $10,600)

• A 20% margin requirement with 5:1 leverage requires $2,120 of capital
  • (# contracts x contract size x price) / leverage
  • (1 x 1 x $10,600) / 5

Short example: Ethereum (ETHUSD)
A trader sells 20 contracts of ETHUSD (10 Ethereum digital coins) at $385

• If prices fall to $305 the trader could exit for a profit around $1,600
  • (# contracts x contract size) x (entry price – exit price)
  • (20 x 1) x ($385 – $305)

• If the price rises to $420 the trader could exit for a loss around -$700
  • (# contracts x contract size) x (entry price – exit price)
  • (20 x 1) x ($385 – $420)

• A 20% margin requirement with 5:1 leverage requires $1,540
  • (# contracts x contract size x price) / leverage
  • (20 x 1 x $385) / 5

Costs Associated with Trading Cryptocurrency CFDs

Spread:
When a trade is entered on our MT4 platform, the trader pays the spread which is a transaction cost. The spread is simply the difference between the bid and ask prices which are visible within the deal ticket or market watch window in MT4.

The spread is a variable rate which fluctuates depending on the amount of liquidity available at time of entry. Typically, the spread could be expected be tighter when trading activity (volumes) are higher. For example, quiet periods such as bank holidays may see a wider spread as there are fewer participants buying or selling cryptocurrencies. Conversely, the spread could be tighter (cheaper) during busy trading periods such as when the US or UK markets are open.

In this example, the spread is $32 USD

Bitcoin (BTCUSD)
Bid / Ask:
11,505.00 / 11,537.00

In the next example, the spread is $25.25

Bitcoin (BTCUSD)
Bid / Ask:
9,856.25 / 9,881.50

Swap:
Swaps are a daily holding cost on open positions, and are derived from the interbank rate from which currency the market is denominated. The swap rate can be either positive (a charge) or negative (a debit) depending on whether the trader is long or short a market. To see current swap rates within MT4, go to the ‘Market Watch’ window (Ctrl+M), right click over a market and select ‘Specification’ from the menu.

Please note that Friday is a triple swap day on crypto CFDs to account for the weekend, as interest rates are calculated 365 a year.

Trade long or short
Trading cryptocurrency derivatives such as a CFD allows the trader to go long or short, which is not always possible through a traditional crypto payment system.

Trade on margin
With cryptocurrencies such as Bitcoin trading at far higher value than some traditional markets, being able to trade them on margin becomes all the more important. Margin allows a trader to purchase a crypto CFD at a fraction of the cost of the underlying market, meaning less upfront funds are required to speculate on that market.

No requirement for a digital wallet
There are many traders who wanted to speculate on cryptocurrencies, but were put off from having to enter a new ecosystem and use a digital wallet. This is no longer the case with cryptocurrency CFDs as the trader can fund their account and withdraw profits in the usual manner at ThreeTrader.

CFDs allows the use of stop loss and take profit orders
As cryptocurrency exchanges are traditionally setup as a payment system, they can lack the tools that speculators require such as stop loss, take profit, or limit orders. This is not the case with a crypto CFD, as the broker that offers them has the speculator’s requirements in mind.

Diversify Your Portfolio
Now traders who have traditionally traded forex, commodities or indices can now expand their watchlists and speculate on cryptocurrencies within the same platform.

Higher Levels of Volatility
As the saying goes, with volatility comes opportunity. And with cryptocurrencies, there’s a lot of it. In fact, its possibly the most volatile asset class overall. Of course, risk management remains paramount to a trader’s success and should be used to help manage potential losses during volatile periods of the market traded.

Trade crypto alongside traditional CFDs from one account
ThreeTrader are a multi-asset broker which now offers popular cryptocurrencies alongside forex, indices and commodities.

Fast execution
Our crypto CFD offering means traders do not have agonizing waits for their crypto exchange to process their order. Our traders enjoy the lighting speed trade execution for crypto that we also offer for our other markets.

World class trading infrastructure
We have invested heavily into our trading infrastructure to offer fast trade execution, which is the ideal environment for scalpers, HTF’s (high frequency traders) and automated traders.

Multiple deposit options
Our clients can deposit funds from several popular payment methods such as Skrill, Neteller, credit card and bank wire.

Zero commission trading
With ThreeTrader, our traders can enter and exit without a commission and just pay the bid-ask spread.