Traders, whether or not they believed in the long-term future of cryptocurrencies, and opinion was certainly divided on that question, absolutely loved their volatility. If great trading opportunities only occur in traditional assets occasionally and often bursts when something in particular is influencing the market, crypto prices were moving by similar amounts every single day. And when particularly volatile could make double figure swings in a matter of hours.
For traders with a higher risk profile, and even those who hadn’t previously traded but had a keen interest in the cryptocurrency market, that was a very interesting proposition. So trading platforms introduced cryptocurrency CFDs and they have been the fastest growing part of their business ever since.
With Facebook announcing its own huge plans to introduce a digital currency, Libra, it believes could completely change currency markets and financial services globally, sometime in 2020, interest, and volatility, is expected to spike again over coming months. Traders are rubbing their hands in anticipation!
Cryptocurrencies were introduced in 2009 with the launch of Bitcoin. To this day nobody knows who exactly invented Bitcoin and the blockchain technology that supported it. The individual(s) went by the pseudonym Satoshi Nakamoto and have never been discovered. But it started a movement that has had its ups and downs as the cryptocurrencies market has gone through growing pains but still seems likely to forever change money and commodity markets and financial systems.
So what’s so special about cryptocurrencies and why do some people think they are a better solution than the currencies we already have like the dollar, pound and euro?
The criticism of fiat currencies, which is what traditional currencies are called since the gold standard ended, is twofold. Firstly, central banks have the power to print money whenever they want to manipulate the economy. They would argue ‘stimulate’ but the fact is when new money is printed and injected into the economy it increases the overall supply. Supply and demand dynamics means this reduces the purchasing power of all of the currency in circulation which is one of the main reasons behind why we have inflation. And inflation erodes the value of money people keep in the bank. This either hinders them building wealth or forces them into risky investments to keep ahead of inflation.
The biggest beneficiaries of the investment industry are financial institutions. But these financial institutions have another role – the fiat system makes them necessary, as central authorities controlling the monetary system. When you transfer money from your bank account to someone else’s, one financial institution has to verify you have that money in your account and improve the transfer. Another couple at least are involved in processing your transfer and then the recipients bank has to confirm it. They all take a fee.
This also means that a relatively small number of huge financial institutions have a huge amount of wealth and influence in the world.
Bitcoin’s revolutionary blockchain technology theoretically changed all of that. Its peer-to-peer system means ownership and transactions of Bitcoin are verified by the system itself in an automatic and highly secure (using cryptography) way. Also, the number of units ever in circulation was capped from the beginning. So no money printing, no inflation and no need for central authorities.
Another kind of cryptocurrency also appeared – utility tokens. These are not intended as a fiat money alternative but are used to pay for the use of a blockchain platform with a particular utility – like Ethereum for smart contracts and decentralised apps or Ripple, a blockchain-based payments system. Their scarcity and equally volatile exchange trading value have also made the largest popular with traders.
Trading Cryptocurrencies as CFDs
Initially, cryptocurrencies could only be traded with actual ownership changing hands over cryptocurrency exchanges. Much like stocks on a stock exchange. But as already mentioned, by popular demand CFDs brokers subsequently introduced cryptocurrency CFDs. This opened up a whole new world for cryptocurrency investors, offering many of the same variety of options to investors as they have when trading other traditional investment instruments.
Why Trade Cryptocurrencies?
The introduction of cryptocurrency CFDs added to the existing advantage of trading cryptocurrencies – the potential for very large long term gains if they became established and being able to profit from sometimes significant price gains over days, weeks, months or years.
CFDs allowing for leveraged trading, though at reduced levels due to the volatility of CFDs, introduced new options for traders. They were now able to both multiply their larger gains (at the risk of multiplying any losses by the same degree) and also potentially make significant returns from smaller price movements.
Cryptocurrency CFDs also crucially meant that traders could not also take short positions. So downwards price swings became just as good potential trading opportunities as upwards price movements.
Trading Cryptocurrencies With eToro
eToro offers one of the most developed and popular options for trading cryptocurrencies. Cryptocurrency traders can open an account within 10 minutes – even less if they don’t want to create a full profile to enjoy all of the benefits of social copy trading.
The broker also offers one of the fullest cryptocurrency offerings. A total of 15 different cryptocurrencies can be traded, 15 crosses between two different cryptocurrencies and 62 different crypto and fiat currency pairs.
eToro also offers a copy trading platform which allows traders to mirror, with the flexibility to adapt how closely, the trades of other traders. With their full historical trading record publically available, less experienced cryptocurrency traders can choose the most successful traders on the platform to copy. And successful cryptocurrency traders can also allow other traders to follow and copy their trades, earning a percentage of the spread for each trade made that copies their positions.
eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFD assets.
Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 66% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
Cryptoassets are volatile instruments which can fluctuate widely in a very short timeframe and therefore are not appropriate for all investors. Other than via CFDs, trading cryptoassets is unregulated and therefore is not supervised by any EU regulatory framework.
Past performance is not an indication of future results.