What is bitcoin trading?
Bitcoin trading is how you can speculate on movements in the cryptocurrency’s price. While this has traditionally involved buying bitcoin through an exchange, hoping that its price will rise in time, cryptocurrency traders are increasingly using derivatives to speculate on both rising and falling prices – in order to make the most of bitcoin’s volatility.
With IG, you can take a position on the price of bitcoin with financial derivatives like spread bets and CFDs. These products can enable you to take advantage of price movements in either direction without taking ownership of the underlying coins – meaning you won’t need to take responsibility for the security of any bitcoin tokens.
Learn what moves bitcoin’s price
To get in on a surging opportunity or short the latest bubble, you first need to understand the factors that have an impact on bitcoin’s price:
- Bitcoin supply. The current bitcoin supply is capped at 21 million, which is expected to be exhausted by 2140. A finite supply means that the price of bitcoin could increase if demand rises in the coming years
- Bad press. Any breaking news which concerns bitcoin’s security, value and longevity will have a negative effect on the coin’s overall market price
- Integration. Bitcoin’s public profile depends on its integration into new payment systems and banking frameworks. If this is carried out successfully, demand might rise which will have a positive effect on bitcoin’s price
- Key events. Regulation changes, security breaches and macroeconomic bitcoin announcements can all affect prices. Any agreement between users on how to speed the network up could also see confidence in bitcoin rise – pushing the price up
How to day trade bitcoin
Day trading bitcoin means that you’ll open and close a position within one single trading day – so you won’t have any bitcoin market exposure overnight. This means that you’ll avoid overnight funding charges on your position. This strategy could be for you if you’re looking to profit from bitcoin’s short-term price movements, and it can enable you to make the most of daily volatility in bitcoin’s price.
How to trend trade bitcoin
Trend trading means taking a position which matches the current trend. For example, if the market is in a bullish trend, you’d go long and if the trend was bearish, you’d go short. If this trend started to slow or reverse, you’d think about closing your position and opening a new one to match the emerging trend.
Bitcoin hedging strategy
Hedging bitcoin means mitigating your exposure to risk by taking an opposing position to one you already have open. You’d do this if you were concerned about the market moving against you. For example, if you owned some bitcoins but were concerned about a short-term drop in their value, you could open a short position on bitcoin with CFDs or spread bets. If the market price of bitcoin falls, the gains on your short position would offset some or all of the losses on the coins you own.
HODL bitcoin strategy
The ‘HODL’ bitcoin strategy involves buying and holding bitcoin. Its name derives from a misspelling of ‘hold’ on a popular cryptocurrency forum, and it is now often said to stand for ‘hold on for dear life’. However, this phrase shouldn’t be taken too seriously – you should only buy and hold bitcoin if you’ve got a positive outlook on its long-term price. If your research or trading plan indicates that you should sell your positions to take profit or limit loss, you should – or you could set stop losses to close your positions automatically.
|Trading bitcoin derivatives with IG||Buying bitcoin through an exchange|
|Cost to get exposure to 1 bitcoin||Margin for retail clients is 50% of the total value of the coin||Full cost of the coin|
|Short selling||Yes||No – unless there is a willing counterparty|
|Tax||Spread bets are completely tax-free, CFDs incur capital gains tax2||You’ll pay capital gains tax on any exchange-based profits2|
|Regulation||We’re a FTSE 250 company, fully authorised and regulated by the FCA||No dedicated regulatory body in place|
|Execution||0.0014 second execution speed and access our unique deep liquidity||Dependent on exchange liquidity levels|
|Restrictions on funding and withdrawing||None, withdrawing or adding funds is free and instant||You may be charged fees and encounter restrictions on adding or withdrawing funds|
|Overnight funding charge||Yes||No|
Trading bitcoin derivatives
Trading bitcoin derivatives with us means that instead of owning bitcoin outright, you’ll be speculating on its price with spread bets and CFDs. As a result, you’ll be able to take a position on bitcoin’s price rising by ‘going long’ or falling by ‘going short’. Here are other benefits of trading bitcoin derivatives with us:
- Leverage and margin: spread bets and CFDs are always traded with leverage, which means you’ll only have to put up a deposit – known as margin – to get full market exposure
- Deep liquidity: thanks to our large client base, our bitcoin market is very liquid. This means you’re more likely to have your orders filled at your desired price – even if you deal in large sizes
- Tax: profit from a spread bet and you won’t pay any tax, while profits from CFD trades can be offset against losses for tax purposes2
- Hedging: shorting with derivatives can be an effective way to hedge your portfolio and protect against market declines
The table below highlights the main benefits of both spread betting and CFD trading.
|Spread betting||CFD trading|
|Main benefits||Your profits are tax-free in the UK2||Tax-deductible losses are useful for hedging2|
|Accessible to||All clients||All clients|
|Traded in||£ per point of movement||Contracts worth one bitcoin|
|Tax status||No capital gains tax (CGT) or stamp duty2||No stamp duty, but you do pay CGT. Offset losses against profits for tax purposes2|
|Platforms||Web platform, mobile trading app and MT4||Web platform, mobile trading app and MT4|
Buying bitcoin through an exchange
Buying bitcoin through an exchange is mainly for those who use a buy-and-hold bitcoin strategy. This is because buying through an exchange means that you’re taking direct ownership of bitcoin – with the expectation that its price will rise.
That said, there are some problems with buying bitcoin through an exchange:
- Bitcoin exchanges often lack proper regulation and the infrastructure needed to respond quickly to support requests
- The matching engines and servers on bitcoin exchanges are often unreliable, which can result in the suspension of markets or reduced execution accuracy
- Bitcoin exchanges often impose fees and restrictions on funding and withdrawing from your exchange account, while accounts themselves can take days to open
As well as trading bitcoin derivatives or buying coins directly from an exchange, you can invest in bitcoin exchange traded funds (ETFs), which closely track or mirror the underlying market price of bitcoin. ETFs won’t give you ownership of the underlying coins, as with spread betting and CFDs.
Decide whether to go long or short
Trading financial derivatives makes it possible to go both long or short, depending on the current market sentiment. Going long means that you expect bitcoin’s price to rise, and going short means that you expect the price to fall.
Set your stops and limits
Stops and limits are crucial risk management tools – and you have several to choose from when you trade with us:
- Normal stops will close out your position at a set level, but they could be liable to slippage if the underlying market price changes quickly
- Trailing stops follow favourable market movements to lock in profits, while capping your downside risk. However, they too can be subject to slippage
- Guaranteed stops will close out your position at a set level, regardless of any slippage. Guaranteed stops are free to set, but you’ll be charged a fee if your guaranteed stop is triggered
These tools are all available to select via the deal ticket on our trading platform.
Open and monitor your trade
To open a bitcoin trade, you’d buy if you thought that the price was going to rise or sell if you thought the price was going to fall. Once your trade is open, you’ll need to monitor the market to make sure that it’s moving in the way you anticipated.
The technical indicators available on our trading platform can help you to determine what bitcoin’s price might do next. Indicators can also help you monitor current market conditions like volatility levels or market sentiment.
Close your position to take a profit or cut a loss
You can close your position whenever you like to take a profit, or to cut a loss that has reached a level that makes you uncomfortable. Your profits will be paid directly into your trading account, while your losses will be deducted from your account balance.
You certainly can profit from bitcoin trading, and your ability to achieve a profit will depend on the depth of your market analysis, your market knowledge and the underlying market conditions.
These will enable you to go long and speculate on the price rising, as well as short and speculate on the price falling. The accuracy of your prediction and the size of the market movement will determine your profit or loss.
Trading bitcoin can be risky due to volatility in the market. However, when you open an account with us, you’ll get access to all of our risk management and educational tools. These include in-platform stops and limits, and the educational resources available on IG Academy – so you can take control of your trading.
We are also an FCA-authorised and regulated company, so any capital in your account is held separately to our company funds – which means that even if we go bust, your money is protected.
Although cryptocurrency is a 24 hour a day, seven day a week market, some hours will see increased volatility and liquidity. For example, 12pm UK time can see some increased volatility as both the UK and US markets are getting into their stride for the day.
Our market hours for bitcoin are from 8am Saturday until 10pm Friday (UK time).
Develop your knowledge of financial markets
Find out more about a range of markets and test yourself with IG Academy’s online courses.
1 Based on revenue excluding FX (published financial statements, June 2020).
2 Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.