Bitcoin Leverage Trading Guide
Bitcoin Margin Trading With Leverage: Investment Certificates and Futures
The analogue world is increasingly subject to digitisation – in everyday life as well as in the economy. Fiat money is moving into the background for future-oriented users in favour of cryptocurrencies.
Litecoin, Bitcoin and Co. are renewing the central bank system and represent a decentralised alternative to existing financial structures. Due to the digital encryption technology, the oldest of the digital currencies makes it possible to offer cross-border payment transactions at favourable conditions. The cryptocurrency trade is gaining popularity. It raises questions for inexperienced investors.
For example, many traders believe that leveraged trading with the virtual currency only works with contracts for difference. Several forms of investment allow trading with Bitcoin with a lever. Investment certificates are one example. The Swiss private bank Vontobel was the first provider to launch these investment products on the stock exchange.
Since 2016, interested traders have been investing in a classic tracker certificate. Similar to CFD trading, they benefit from the price development of the Internet currency. At the start of the sale, the Bitcoin price hovered around EUR 700.
Since then, the virtual currency has established itself as a “bankable asset” that does not require a crypto exchange or wallet for trading. In order to trade a Bitcoin certificate with leverage, you should consider this type of investment before investing.
The structured products have an average term of two years. First-time buyers benefited from a yield of 800 percent in 2018. Traders who decided to buy the certificates after 2016 faced a problem. Prices fell in the course of 2018, leaving a small profit at maturity. This maturity restriction represents a weakness of the tracker certificates.
Experienced investors are interested in tactical trading with quick entries and exits. The high volatility of cryptocurrencies is considered advantageous in this approach. On the other hand, the purchase and long-term holding of a Bitcoin certificate leads to a considerable risk of loss.
Open-end certificates represent an alternative to tracker certificates. The offers of several financial service providers include other assets besides Bitcoin, for example:
- Ethereum and
- Bitcoin Cash.
Trading Bitcoin Certificates with Leverage – you should keep this in Mind
Compared to other financial instruments, Bitcoin certificates represent an uncomplicated investment opportunity. An investment in certificates is worthwhile primarily if the price of the coins is expected to rise. These certificates are not in unlimited circulation, so that few financial service providers offer them to their customers. The financial product represents a performance of the price and offers a one-to-one participation.
This applies to price gains and losses of Bitcoin against the US dollar. Although the limited term may have disadvantages, the certificates are meeting with popularity. A securities account is a prerequisite for investing in this form of investment. You open this with a broker, branch or direct bank. A securities account comparison on the Internet helps you to find a low-cost and at the same time high-quality offer. A good source is this website.
Buying real Bitcoin – where and how does it work?
In addition to investing in CFDs and certificates, traders trade the cryptocurrency on Bitcoin exchanges. In doing so, they convert the Euro into the virtual currency, for example. Trading on a crypto exchange is more anonymous than with a classic broker. To open an account, investors provide their personal data. They then act under a nickname or a participant number.
Accordingly, the trading partner does not learn any details about buyers or sellers. With a Bitcoin exchange, trading is automated. The users specify how many coins they buy or sell at which price. The program then searches for a suitable offer and closes the trade on behalf of the customer.
Alternatively, the investors decide to search for offers manually in a crypto-marketplace. Both purchase options involve greater effort than trading with contracts for difference. For example, traders need a virtual wallet to store their Bitcoin assets.
The wallet exists in different forms. A smartphone wallet is recommended for flexible trading on the move. Transactions from a PC can be realised with an online Wallet. Another alternative is the hardware wallet. It has no connection to the Internet, so it does not provide a target for hackers. In this digital wallet you store and manage the various Bitcoin addresses. In addition, the programme enables you to receive and send the cryptocurrency. It stores the transactions so that you benefit from a practical overview.
The transfer of the Bitcoin is not much different from a classic bank transfer. You do not need an IBAN or account number of the recipient during the process. All you need to know is the recipient’s Bitcoin address.
The agreed amount is transferred to the seller’s account without any intermediary. For this reason, there are lower charges compared to bank transactions.
Install a wallet, set a passphrase, a strong password. This “private key” allows access to your online wallet. You give it before all transactions. Make sure that the key does not fall into the hands of unauthorised persons.
Various Possibilities and special Features for Trading Cryptocurrencies
Beginners find it difficult to deal with the direct purchase of Bitcoin and its safekeeping in the wallet. Sometimes they feel insecure when trading on a crypto exchange. Numerous exchanges are subject to inadequate regulation, so that low security standards prevail. For this reason, regular exchange trading arouses the interest of risk-conscious investors. Several financial products allow an investment in Bitcoin without buying it. In addition to contracts for differences and derivatives, ETNs are an investment opportunity.
The Exchange Traded Notes are debt securities. They are not limited to Bitcoin. The world’s first ETO on a crypto index comes from a financial services provider in Switzerland. The ETPs – Exchange Traded Products – summarise the majority of providers under the term ETN. The collateralised debt securities differ from regular certificates due to the collateralisation. The main difference to an ETF traded on the exchange is the underlying investment form. ETFs are funds that combine several indices.
Where do trade Bitcoin on Margin?
Leverage is one of the reasons for many investors to invest money in Bitcoin. They hope for a disproportionately high profit. In addition to leveraged CFD trading, there are other forms of investment where investors use leverage to maximise returns. Leveraged financial products are associated with high risk. For this reason they are suitable for traders with a high risk affinity.
Also read our article about cryptocurrency trading platforms.
Several financial service providers offer leveraged mini-futures on Bitcoin and other cryptocurrencies. This investment opportunity combines the advantages of a leveraged product with those of an open-end certificate. With a Bitcoin certificate, investors trade with leverage on rising or falling prices.
In technical language, these investment forms are called long or short mini futures. A stop-loss threshold is decisive for profit or loss. An example explains the leverage of this financial product. A long certificate goes public at a price of 0.60 euros. At market entry the leverage is 10.2.
If the Bitcoin price is quoted at 3,400 euros and rises by 2,220 percent within several months, the certificate records an increase in value of over 2,400 percent. Investors who bet on a short mini-future in this example will leave the market with losses due to the price increase. Regular futures are subject to an obligation to make additional contributions. In the case of mini-futures, this is not applicable due to an inserted stop loss. When trading, investors pay attention to the currencies.
If crypto-mini-futures are quoted in euros and underlying assets are in US dollars, there is a currency risk. In the best case, this leads to an additional chance of profit due to exchange rate fluctuations. On the other hand, financial losses are threatened due to changes in exchange rates.
Trading in the Mini-Futures on Bitcoin is proving to be new and innovative. In 2019, the range of suitable trading venues will be manageable. Before beginners enter the market, they inform themselves about the individual financial products. It makes sense to weigh up the advantages and disadvantages of several forms of investment against each other.
Trading Bitcoin with leverage on an Exchange
If investors prefer “real” coins, they trade selected digital currency pairs on crypto-trading platforms with a lever. On corresponding exchanges, Bitcoin is traded against another cryptocurrency.
The leverage offered starts at 3:1. Exchanges exist in the US where leveraged trading works at a ratio of 5:1. Pure trading exchanges specialising in virtual currencies are attractive to investors because of their high leverage. They trade Bitcoin, for example, with a leverage of 100:1. In addition to flexible leverage, these exchanges offer other advantages:
- They demand low fees from traders.
- The minimum deposit is low or does not apply.
- Trading is 100 percent anonymous.
The latter succeeds because the Exchanges do not require verification of the users. The resulting security gap is a disadvantage. For example, it happens that dubious traders register several times. Furthermore, it is mainly newer platforms that have limited performance and insufficient support.
The deposit works with selected cryptocurrencies. Investors who are interested in an Internet currency outside the offer cannot participate in trading. The most traded Internet currency on the Exchanges is the Bitcoin. Due to the high daily trading volume, performance may be limited. Long maintenance times and technical failures occur as a result of the enormous platform load.
These unpleasant events partially affect the entire market. For example, technical failures prevent traders from reacting to a change in Bitcoin prices. If the complications affect 30 to 40 percent of Bitcoin investors, the credibility of the market suffers.
Several comparisons of Bitcoin trading platforms can be found on the Internet. They will help you find an exchange that scores with reliability and high execution speed.
Several exchanges offer a proprietary wallet where users store their Bitcoin capital. If necessary, they exchange it for Fiat money and initiate the payout.
The Crypto Trading Exchange vs. CFD Broker: Advantages and Disadvantages
Leveraged trading works with an online stockbroker and on an exchange. To find a trading platform, compare the positive and negative aspects of both variants. Among CFD brokers, sceptics complain about the high fee structure. Sometimes the providers demand high costs for deposits and withdrawals.
Furthermore, spreads can be large regardless of the size of the trading position. Given the large number of Bitcoin trading exchanges, there is a volume-based commission. If you trade small amounts, the scheme has a positive effect on trading costs.
In addition, the trading platforms differ in terms of verification. If you open a paid trading account with a CFD broker, you deposit a number of personal details. In addition to your name, address and e-mail address, providers sometimes require you to provide your telephone number. To qualify for a VIP account, provide information about your previous trading experience.
This is followed by an identity check using the post-ident procedure. Modern brokers come up with the faster video ident procedure. With both variants you show your identity card or a comparable document. The comprehensive verification is not necessarily a disadvantage.
Compared to offshore trading platforms and unregulated crypto stock exchanges, CFD brokers shine with high security standards. The online stockbrokers allow deposits and withdrawals in Euro or another Fiat currency. This facilitates the entry into trading for traders who are slowly approaching the cryptocurrencies.
Advantages of CFD Brokers in Terms of Security
CFD brokers registered within the European Union are considered to be legally active financial services providers. They are subject to the supervision of a financial authority. Providers based in Germany are regulated, for example, by BaFin. If the head office of the company is located in Great Britain, the FCA takes over the regulation. For CFD brokers based in Cyprus, the CySEC is used. In the event of a problem, the traders benefit from a contact person who will take action against the online stockbroker in justified cases.
The regulatory authorities will help you to obtain your rights in case of dispute. This advantage does not exist with a crypto stock exchange. The providers decide according to which principles the trading takes place. In the event of a claim, they are also responsible for processing the case. From 2020, crypto-companies operating in Germany – such as Bitcoin Exchanges and crypto exchanges – will be subject to extended BaFin regulations.
The regulations by European supervisory authorities naturally apply to brokers based in the EU. Numerous online stockbrokers operate from the Seychelles or Belize. In their case, regulation and deposit insurance are sometimes inadequate. In addition, the rules established in Europe do not apply to these offshore brokers as regards product offerings and leverage. If you recommend such a provider, examine the financial products carefully.
Trading Bitcoin with Leverage
In addition to the fee structure, you can also find out about the maximum amount of levers. In some cases, brokers offer flexible leverage. In this variant, traders decide on the level of leverage at their own discretion. Choose a realistic value or do without leverage completely. Numerous offshore brokers work with the obligation to make additional contributions, so that in the event of a loss your private assets are at risk.
If an unregulated crypto-company goes offline or coins disappear due to unauthorised access by third parties, those affected suffer an irretrievable financial loss. There is no chance for them to successfully file a claim for damages. The same applies if a trading platform temporarily suspends trading operations due to overloading and investors miss out on profit opportunities.
Renowned online stockbrokers have years of experience in trading. They offer the users:
- high quality services,
- an intuitive trading platform,
- fair trading conditions and
- a reliable customer service (preferably 24-hour support).
If you specifically decide on leveraged trading with cryptocurrencies, look for a broker with good ratings. Serious providers limit the leverage at Bitcoin to 2:1, which prevents inexperienced investors from taking excessive risks. This maximum level of leverage exists for standard accounts. With extended trading accounts, some providers advertise higher leverage. These are used by the traders, for example in forex trading.
Conclusion: Use Leverage to optimise Trading Profit Opportunities
The cryptocurrency Bitcoin aims to revolutionise the payment system. It is slowly making its way into everyday life. The Internet currency is celebrating faster success in online trading. Due to the hoped-for price increases, investors are interested in leveraged trading with coins. This works via classic contracts for difference, Bitcoin certificates and mini-futures.
Several exchanges offer trading of Bitcoin with a flexible lever. If you decide specifically in favour of leveraged cryptocurrency trading, contact a reputable broker with headquarters within the European Union. In this way you benefit from high security and reliable regulation. If the exchange rate moves in the desired direction, an enormous return can be expected with high leverage. If investors make a wrong decision when trading, they are threatened with a large financial loss.