NFT investing: how to trade or invest in NFTs

What are NFTs?

Non-fungible tokens, or NFTs, are records of digital files with unique information that’s stored and linked to the blockchain technology.¹ NFTs can be digital records of artwork, collectibles, domain names, sports, trading cards and virtual property that can be bought or sold on a blockchain.²

Note that NFTs are not an asset class, but blockchain technology validating ownership of the digital commodity or item. Therefore, NFTs can be seen as certificates or deeds showing digital ownership of intangible assets that can’t be replicated.

Those transactions are noted on the blockchain, which serves as a public digital ledger that records deals on the decentralised web, offering some transaparency.¹

What are fungible assets?

Fungible assets are individual commodities that are interchangeable and thus cannot be distinguished from one another. In economic terms, currency is a fungible asset since it can be exchanged for other items of equal value. For instance, when a £10 is exchanged with two £5 notes, the spending power is still the same.

What are non-fungible assets?

Non-fungible assets cannot be exchanged for the same value because the item’s unique properties cannot be exchanged with that of another. An example of non-fungible assets are collectibles such as the Mona Lisa portrait painted by world renowned artist Leonardo da Vinci, sports trading cards and similar memorabilia.

Placing a monetary value on such collectible items is subjective since their individual properties make them sentimental to the owner, especially if stored and sold while in mint condition.

Why do people want to invest in NFTs?

Some people want to invest in NFTs because it’s a way to make money from the buying and selling of digital collectible items. Investors in this space can make profits from trading NFTs like they would in any cryptocurrency investment. Below are some reasons people want to invest in NFTs:

• Increasing access to ownership. Historically, collectibles were only something that high net worth individuals could access. However, NFTs have since opened the door for anyone to invest in these tokens that can be used in the metaverse. This means these tokens can be bought and sold as well as transferred to anyone across the world without having to pay taxes.
• Decreasing maintenance costs. Collectors of physical collectibles are often at pains trying to maintain the items in their original form as at the time of sale or in mint condition. However, this is not an issue with NFTs since they have lower maintenance costs.
• Increasing the security of collectibles. Some traditional insurance companies don’t cover collectibles. This may mean collectors are not protected against theft or damage to the physical asset. With NFTs, while the tokens are not insured, they have increased security owing to the transparency of the public digital records of transactions that can’t be deleted.
• Easily transferrable. NFTs can be transferred with ease to anyone in any part of the world

Ways to trade or invest in NFTs

Invest in NFT tokens directly

Investing directly in NFT tokens involves trading them on marketplaces like OpenSea and Binance. NFT tokens are unique and can’t be replicated within the blockchain. They can be used to buy and sell physical commodities available in the real world or digital asset that exist in the metaverse.

OpenSea has NFT categories such as art, collectibles, audio, videos, and domain names that are used in the metaverse and they have integrated ecosystems that are maintained by the crypto community.² Binance is a crypto exchange used to trade hundreds of various cryptocurrencies including Bitcoin, Ethereum, Cardano and Green Metaverse Token to name a few.³

While some may believe that buying and selling NFT tokens reduces the likelihood of fraud, there are some potential risks. Unethical conduct such as people buying NFT tokens using fake accounts and inflating the price with each transaction may lead to a price hike of the asset due to what seems like an increased demand of the digital asset.⁴

Also, when looking to buy digital assets on NFT marketplaces you are more susceptible to being scammed. It’s hard to determine if what is being sold is a copy or the original asset. Unlike transactions that take place on centralised systems like traditional banks, once you buy an items on the blockchain that transaction can’t be reversed.⁴

Like most cryptocurrencies, the NFT market is highly volatile with high price fluctuations. An NFT token’s value may decrease and lose the value at which it was originally purchased faster than you’d hoped.⁴

NFTs are illiquid and can only be sold it there’s a potential buyer. In many countries NFT tokens are not regulated by government authorities or laws, which offers lesser protection for users compared to transactions done on centralised or traditional finance systems.⁴

Trade or invest in NFT-linked ETFs

Trade or investing in exchange traded funds (ETFs) linked to non-fungible tokens offers people who believe in the prospects of these digital assets increased access to owning NFTs, but at a reduced risk.

Trading or investing int ETFs will enable you to diversify your portfolio as your risk will be spread across a wide range of companies. If you’re looking for exposure but at reduced risk then trading or investing in NFT-linked ETFs is an alternative.5

NFT-linked ETFs are instruments that track the performance of investments in a group of companies within the NFT sector.5 An increase in the value of the clustered NFT companies being tracked by the instrument will also result in a rise in the ETF’s share price.

With us, you can track the best NFT-linked ETFs in the UK using the KOIN.L: ETC Group Digital Assets and Blockchain Equity UCITS ETF. This ETF tracks the performance of 31 companies within the blockchain and digital assets sector.

Trade or invest in NFT stocks

Trading or investing NFT ETFs enables you to reduce your risk through portfolio diversification. Some trading strategies to perform before embarking on this exercise include fundamental and technical analysis. Some of the stocks exposed to the NFT industry are:

• Atari
• Funko
• Mattel
• Shopify
• Coinbase
• NVIDIA

Discover the Best NFT stocks to watch

How to start trading or investing in NFTs in 3 steps

Open an account to trade or invest in NFTs

Buying NFTs directly

Trading NFTs directly will require you to make a payment using cryptocurrency. The NFT marketplace OpenSea is where most transactions take place with Ethereum.² Another NFT marketplace ins Binance that enables users to buy, sell and trade in-game assets, digital art and digital collectibles.³

It’s important to note some of the risks involved such as investments that disappear without a trace, so to speak, or artworks containing trojans that can potentially pose a threat by exposing your IP address.

Buying NFT ETFs or shares

To trade or invest in NFT ETFs or stocks, the process has been simplified. With us, you can open an account and deposit funds easily. We’re a FTSE 250 company, fully regulated by the FCA. You can buy or sell with 0.014 second execution, deep liquidity, and withdrawals are always free and fast.⁶

Choose whether to trade or invest

When buying NFTs directly, you’ll be investing and owning the digital asset outright. When taking a position on NFT shares or ETFs, you’ve got the choice to either invest or trade. When investing you’ll buy and own the NFT shares or ETFs outright. You’ll also make a profit if the asset appreciates or lose money if the price falls.

Trading NFTs, on the other hand, tends to be risky and is best suited to experienced traders.

Pick your NFT asset and open your first position

Once you’ve made your choice on the NFT asset you want to invest in or trade, you can use our award-winning platform to do this.⁷ With us, you’ll have over 18,000 shares and ETFs to choose from.

You can get exposure to NFT stocks and ETFS by investing through our stock trading platform and then you’ll own the shares outright. Alternatively, you can trade NFTs using CFDs, which will enable you to speculate on their price movement, however you won’t own the stock outright.

Here’s how to open you position with us:

1. Create a stock trading account to invest in NFT stocks and ETFs
2. Alternatively, if you choose to trade NFT stocks and ETFs with us, open a CFD trading account
3. Open the trading platform and type ‘NFT stocks’ or ‘NFT ETFs’ into the search bar
4. Select ‘buy’ or ‘sell’ on the deal ticket
5. Set your position size, as well as your stops and limits
6. Click ‘place deal’ to confirm the position and open the trade

Should you invest in NFTs?

Before you decide to invest in NFTs consider the following pros and cons below.

Pros:

• Providing increased access of non-fungible asset ownership to anyone and not only high net worth individuals
• Offers increased transferability to anyone around the world who seeks to buy sand sells digital assets
• Surpassing the tax man. There’s no requirement to pay tax when buying non-fungible collectible items as compared to buying them through traditional centralised systems
• Improves the transparency of transactions since anything that’s been recorded on the blockchain technology cannot be altered or deleted

Cons:

• Lack of regulation, which may often leave users vulnerable to scams on NFT marketplaces
• Verifying NFT authenticity can prove challenging. If you don’t perform your due diligence, you can buy a copy of a digital asset instead of minted or original content
• Use of fake accounts by the seller to try and inflate the price of each transaction may give a false impression of increased demand for the NFT
• Requiring a potential buyer before you can sell an NFT

Trading or investing in NFTs summed up

• Non-fungible tokens, or NFTs, are records of digital files with unique information that’s stored and linked to blockchain technology.
• NFTs provide increased access of non-fungible asset ownership to anyone and not only high net worth individuals
• They offer increased transferability to anyone around the world who seeks to buy and sells digital assets
• Trading NFTs directly will require you to make a payment using cryptocurrency.
• When buying NFTs directly, you’ll be investing and owning the digital asset outright.
• You can trade or invest in NFT stocks and ETFs by opening an account with us

Footnotes

¹ The Verge, 2021
² OpenSea, 2022
³ Binance, 2022
⁴ Forbes, 2022
⁵ Capital.com, 2021
⁶ Based on IG Group's OTC data for October 2019
⁷ Awarded ‘best finance app’ and ‘best multi-platform provider’ at the ADVFN International Financial Awards 2022