Anyone can buy bitcoin or check the price of Ethereum via their smartphone. You can even use bitcoin to pay for flights and college degrees. Not surprisingly, trading in cryptocurrencies is viewed as an attractive option. Prices have fallen in recent weeks, but there is every likelihood that crypto prices will rise once again. In this article, we are going to look at your options if you want to trade in cryptocurrencies.
There are three different ways to trade in bitcoin and other cryptocurrencies. All of them are accessible to everyone, which is handy if you don’t work for an investment bank.
Buying and Selling Via an Online Exchange or Broker
The first way to trade cryptocurrencies is to buy and sell virtual currency via an online cryptocurrency broker or exchange. There are many to choose from. Kraken is an example of a crypto-exchange. If you trade crypto on there, you will have to pay a small fee. Coinbase is a well-known cryptocurrency broker. Fees charged by brokers tend to be higher, but they are easier to use if you are a novice.
On the face of it, cryptocurrency trading seems like a simple affair, but there are a few things to watch out for. As well as the fees charged by platforms and brokers, there are often outages, during which time your transaction fails. Many exchanges enforce buying limits, and you may need to verify your identity. There is also the problem of security. If you store your crypto in an online wallet, you could lose everything to a determined hacker.
Trading Cryptocurrency CFDs
CFDs offer a different way to speculate on the price of a cryptocurrency. Rather than buying the underlying cryptocurrency and having the headache of storing it in a secure virtual wallet, you can bet on the price rising or falling via a Contract for Difference.
CFDs are very simple. A CFD with a broker states that a price will rise or fall. For example, if you open a long position CFD of 1%, the broker will pay you if the price of the cryptocurrency rises by 1%. If it goes against you (i.e. falls by 1% or more), you pay the broker.
The advantages of trading via CFDs are very clear. For starters, you never own the underlying instrument, so security is not a problem. And secondly, you can maximize your profits using leverage. CFDs are perfect for day traders, as you can open and close positions very quickly. As long as you don’t hold an open position overnight or over a weekend, you won’t incur any broker fees.
Buy Shares in a Cryptocurrency Security
The last option if you want to trade cryptocurrencies is to invest in a publicly listed security associated with a cryptocurrency, such as an ETF. However, the spreads may be different, and you can’t trade a security 24 hours a day, as you can the underlying currency.
Consider the pros and cons of each strategy and always use a reputable trading broker or exchange.
Image Credits: Trade Cryptocurrencies from Vintage Tone/Shutterstock