Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

How to trade ethereum

Everything you need to know about the ins-and-outs of ethereum – plus the steps you need to follow to start trading its token, ether.

Cryptocurrency trading is only available to professional traders.
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As one of the first examples of how bitcoin’s blockchain technology could be enhanced to new functions, Ethereum has garnered a lot of attention since its creation in 2015. And for ether, its cryptocurrency, that attention has led to major volatility.

Although people commonly say they are trading Ethereum, they're actually trading it’s token, ether.

If you’re a professional trader looking to take advantage of that volatility, follow these three steps:

  1. Choose how you’d like to trade ether
  2. Learn how Ethereum works, and the difference between Ethereum and ether
  3. Explore the factors that influence its price

Ways to deal ether

There are two main ways to take advantage of ether volatility: buying it from an exchange or trading crypto derivatives like spread bets and CFDs.

  • Buying ether: anyone can buy ether directly from a crypto exchange without needing a professional trading account. But, you will need to create a digital wallet and an account with a crypto exchange
  • Leveraged trading: this option is only available to professional traders, and it means you’ll be speculating on ether’s price movements with derivatives like spread bets or CFDs without owning the tokens directly

Learn more about the different cryptocurrencies and how they compare against each other

CFDs and spread betting offer leveraged trading on ether alongside several other major cryptocurrencies, and there are unique benefits to each:

Ether spread betting

When you trade ether via spread bet, you bet on the price moving either up or down. If ether moves in your chosen direction, you can make a profit, but if it moves the other way, you make a loss.

Find out more about spread betting

Ether CFDs

A CFD or ‘contract for difference’ is an agreement to exchange the difference in price of ether from when you opened your position to when you close it. Buy CFDs to go long, or sell them to go short.

Find out more about CFD trading

But, remember that only professional traders can trade cryptocurrency with spread bets and CFDs. Find out more about our professional account.

How does Ethereum work?

Ethereum works as a digital platform which adopts the blockchain technology established by bitcoin, and expands its use to accommodate a wide variety of other applications. It is not to be confused with ether – the cryptocurrency underpinning the network – which is often referred to as ethereum.

How does ether work?

Ether, like other cryptocurrencies, uses a shared digital ledger where all ether transactions are recorded. It is publically accessible, fully transparent and very difficult to alter retroactively.

This is known as the blockchain, and it is created through the process of mining.

Miners are responsible for verifying clusters of ether transactions to form ‘blocks’, and securing them cryptographically by solving complex algorithms. New blocks are then linked to the chain of previous blocks, and the miner in question earns themselves a ‘block reward’ – that is, a set number of ether tokens.

The miner consolidates recent cryptocurrency transactions into a 'block'. 

The block is cryptographically secured and linked to the existing blockchain.

The miner earns a block reward, which they can inject directly back into the market.

What about Ethereum?

The Ethereum blockchain is very similar to that of bitcoin, but its programming language enables developers to write software through which blockchain transactions manage and automate specific outcomes. This software is known as a smart contract.

If a traditional contract outlines the terms of a relationship, a smart contract ensures those terms are fulfilled by writing them in code. It is software that automatically executes the agreement as soon as predefined conditions are met, eliminating the delay and expense involved in completing a deal manually.

To take a simple example, an Ethereum user could create a smart contract to send a certain amount of ether to a friend on a certain date. They would write this code into the blockchain, and as soon as the contract is complete – that is, the agreed date arrives – the ether would automatically be released to the other party.

A fixed number of anonymous parties agree to a set of terms, and a contract is coded into the blockchain. 

The triggering event takes place, and the contract is fulfilled. 

The terms of the agreement are carried out among the relevant parties. 

This fundamental idea can be applied to far more complex setups, and its potential is arguably limitless, with projects already making headway in the areas of insurance, property, financial services, legal and crowdfunding.
 

What are dapps?

Dapps (sometimes written ‘DApps’), are decentralised applications that run on the Ethereum network. They function in a similar way to smart contracts, but they don’t add any information to the blockchain. That means that there are a couple of key differences between the two:
 
  • Where smart contracts require a fixed number of parties to be involved, dapps have no limits on how many can participate at any given time 
  • Dapps aren’t confined to purely financial uses as smart contracts are: a dapp can essentially have any purpose that comes to mind 

What moves ether’s price?

Ethereum is less exposed to many of the economic and political factors which affect traditional currencies, and its value is influenced by a host of unique dynamics:

Market manipulation

A lack of regulation means traders may be able to influence the market by buying and selling in significant quantities.

Availability

Unlike bitcoin, there is no limit on the supply of ether. Even so, many ether units will continue to be added and lost over time, causing its availability to fluctuate.

Wider acceptance

The ether ecosystem is constantly changing as adoption of the cryptocurrency grows, both among independent investors and those in industry.

Government regulation

Governments are still adapting to cryptocurrencies, with considerations for supervision mechanisms and other new guidelines.

Media coverage

Negative press, particularly surrounding security lapses and hacks, can impact public perception of ether’s value.

Technological advances

Ether’s integration into payment systems, crowdfunding platforms and more could raise its profile, while confidence in traditional systems may begin to erode.

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FAQs

Under FCA rules, only professional traders can trade cryptocurrency with derivatives like spread bets and CFDs. Learn more about professional trading and check your eligibility on our professional account page.

The ticker symbol for ether is ETH.

Of all the cryptocurrencies, ether currently seems most likely to take bitcoin’s place at the top of the pecking order. Bitcoin has seen much of its market share erode over 2017 to the young upstart, and there is every chance ether could continue to make significant gains in the next few months, eventually bringing about what’s known as ‘the flippening.’

Some, however, are sceptical this will ever happen. Bitcoin’s sole function is as a currency, while ether’s primary function is to facilitate smart contracts and dapps. This means its reputation as a viable alternative currency may begin to falter. 

There’s no limit to the amount of ether units that will be released overall, but there is an annual limit of 18 million. This ensures there is never more than a steady influx of ether into the market, even as computing power improves.

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