How to trade Bitcoin

You own the Bitcoin you trade (provided you aren't short selling) when you trade through an exchange. This means you can use your Bitcoin to pay for goods and services where it is accepted as a means of exchange.

There are no overnight or long term holding fees when you own the underlying Bitcoin, provided you aren’t trading futures contracts.

You can exchange Bitcoin for another cryptocurrency or fiat currency.

Fractional Bitcoin purchases are allowed. This means you can buy as much Bitcoin as you are willing to pay for in fiat currency or cryptocurrency. 

There are significant fees related to the transfer of fiat into cryptos. Some exchanges charge 1-2% for bank wire transfers and 3-4% for debit or credit card deposits. On a $50,000 deposit that could be as much as $2000. If you're looking to trade in and out on a short term timeframe, and need to deposit to your account fast, your balance will take a hit. That's less money to trade with and potentially fewer opportunities to pursue.

You must open and maintain a crypto wallet in order to buy or sell Bitcoin through an exchange. You are required to safeguard access to this in order to prevent theft of coins.

Not only will you pay spread, the difference between the buy and sell price, but you typically pay volume fees on Bitcoin transactions. For larger traders, this will really eat into your balance. Some exchanges will, however, incentivize you to trade by lowering these fees if you use their dedicated coin to trade.

Further, as the cost at which Bitcoins are mined fluctuates, so too will the fees you pay.

If you're trading the underlying Bitcoin, you need to put down the full face value of the trade. This means significant capital is required to open a trade of decent size. You can only trade with leverage if you trade futures contracts, or if you borrow funds.

The exchange may prevent you from spending or withdrawing your Bitcoin or other cryptocurrency. This can happen when you trade with a Centralised Exchange (CEX) that lacks liquidity in a particular cryptocurrency for a period of time. They can do so as they control your private key, meaning you can't execute a transaction using your Bitcoin without their permission.

As there are many different exchanges where bitcoin is traded, the price you get on one exchange could vary wildly with those on other exchanges. 

The enticing aspect of trading CFDs over the underlying Bitcoin is the ability to trade using leverage, meaning you only put down a portion of the amount you would at an exchange. Trading with leverage of 2:1, for example, simply means that for the Bitcoin purchase you would have made on exchange, you’re only required to put down 50% of the value of that trade.

If Bitcoin is at $50,000, that’s a whopping $25,000 difference in capital requirements. Your trade result is determined by price movements in the underlying $50,000 contract, and not the $25,000 you put down in margin requirements, resulting in the same level of intended exposure for less.

Not only can you trade Bitcoin CFDs with leverage, but the ability to trade both long and short is uninhibited by ownership complications. You don’t need to go through the process of creating and safeguarding a crypto wallet to buy Bitcoin because you don’t actually own the Bitcoin in CFD trading. 

Similarly, you don’t need to borrow Bitcoin in order to short it for any time period. This means you don't need to pay any form of borrowing fees for the right to short Bitcoin. CFDs allow you to express a view on Bitcoin's price with fiat currency, enabling you to take advantage of price action in the underlying market at the click of a button.

The costs of trading Bitcoin CFDs rather than buying or selling the actual coin can be significantly less. Most top tier CFD providers, like Pepperstone, will not charge any fees for depositing to your account in major currencies. Since all of your funds are held in fiat, and as you are trading derivative security contracts rather than the underlying, there’s no conversion fees to buy or sell the cryptocurrency. You are simply opening a contract which states that;

1. If you are long and the price of Bitcoin increases, the value of your contract increases, and vice versa.
2. If you are short and the price of Bitcoin decreases, the value of your contract increases, and vice versa. 

Furthermore, the only costs you pay are spread, the difference between the bid and ask price, and overnight funding costs where applicable. There are no volume or commission fees. Overnight funding costs will only be charged if you hold a Bitcoin CFD trade past rollover (5pm New York), so if you are trading intraday, this won't apply. If you're trading on very short timeframes, you're essentially just trying to beat the spread. 

This simple fee structure leaves more money in your account for you to take advantage of Bitcoin volatility.

With Bitcoin CFDs you can enter fractional Bitcoin positions, just as you can on an exchange. Trade from as little as 0.01 contracts (0.01 Bitcoin).

When you trade Bitcoin and crypto CFDs, your CFD account grants you access to trade FX, Indices, Commodities, Metals, Shares and more. That means you can take advantage of the full suite of trading opportunities across all major asset classes using the same account. 

You can find all the trading instruments we offer here.

Leverage is, of course, a double edged sword. The higher the leverage, the more risk you are taking on. Profits may be magnified, but so too are losses. Bitcoin and other cryptocurrencies are inherently volatile, and trading these instruments with leverage increases your exposure to volatility. You may be closed out of your positions if you don't have enough funds to cover the margin requirements of your trades, and sharp, volatile price action can quickly cause your stop losses to be hit.

However, with effective and disciplined risk management, this additional risk can be managed.  Appropriate position sizing relative to your account balance, placing stop losses and ensuring your account is adequately funded can reduce the additional risk that comes with leveraged trading.

When you trade Bitcoin CFDs, you don't hold any ownership rights to the underlying Bitcoin in each contract. If you purchase 1 Bitcoin CFD contract and the value of Bitcoin rises, you cannot access the Bitcoin underpinning the contract. Instead, you are entitled to the monetary value of the profit made on your trade.

While Bitcoin CFDs can be used for longer term trading, there are costs involved that you might not be charged on an exchange when holding trades for consecutive days. Typically, you will be charged an overnight funding fee, expressed as an annualized %. This rate is paid in order to keep your positions open from day to day. 

Holding Bitcoin CFD trades for long periods of time can potentially eat into your profits, but this is the price you pay as a trader for access to leveraged trading on volatile assets. It's essentially a fee for prolonged exposure to volatility in the market.