There has been a lot of hype in the media about how Bitcoin can be one of the best ways to earn from your investments. There are many ways in which you can trade and invest in cryptocurrencies without owning it, one way is through a CFD (Contract for Difference) while the other is through spread betting. Both ways, the risk involved in investing is the same.
What is spread betting?
This is a type of derivative strategy where you can speculate the rise and fall in the price of Bitcoin. You place two bets, one ‘ask price’ which is the price at which you are willing to buy the Bitcoins, the other is the ‘bid price’ or the price at which you want to sell at. The difference between the two is the ‘spread’ where the speculator makes the profit.
With this, you can choose the bid price based on whether the prices of cryptocurrencies rise or change the bid price if you think the price of the cryptocurrency will fall. Spread betting is done in various markets, not only in cryptocurrencies or stocks.
How to spread bet with Bitcoin
First, you have to estimate whether the price of Bitcoin or other cryptocurrencies will rise or fall. You can then decide accordingly whether you want to have a long or a short call on this. Based on it, you can then place your bet and participate in the trade. You can close your spread bets whenever you want irrespective of whether you have made a profit or a stop loss.
Spread bets come with a specific time scale- you must do it within the time given or it will expire. Some bets last for days while others last for months. You can calculate your earnings by subtracting the settlement price from the opening price and then multiplying the result by the stake.
You can spread bet on a single cryptocurrency or a pair, like XBT/GBP, XBT/USD and others. You need to do spread betting on a leverage, this helps you to get market exposure but also makes your investments riskier. Generally, you are required to have enough cryptocurrencies in your account so as to ensure that you can leverage both profits and losses.
Spread Betting versus CFDs
Both Spread betting and CFDs involve high risk but also help you to get high returns. Here, you can also go short and use the power of margin and leverage. Both Contracts for Difference (CFDs) and spread betting are taxation efficient, but you have to pay a Capital Gains Tax for CFDs.
Due to the high risk involved in spread betting, many countries have made it illegal. However, there are many people who do it wherever it is legal.
Pros and cons of spread betting
The biggest advantage of spread betting against other forms of investment is that you can trade using margin. This can let you increase your position in the market as against your true capability to invest, eventually leading to profits.
With Spread betting, you can use multiple ways to limit your risk, one of which is stop loss. This way of investment is also free from commissions and you can trade across the day 24x7 based on how your broker works. However, you do need to have a lot of training before you can start to spread bet with cryptocurrencies like Bitcoin.
Due to the possibility of a higher reward, the chances of getting a higher loss is also high. However, the plus point is that you do not need to pay taxes on your spread bets and also no commissions have to be paid. But this also means that brokers may charge wide spreads. You can reduce this risk by risk mitigation strategies and by selecting the right broker.
For many people, spread betting is a great way of earning from Bitcoin without actually owning it. You can spread bet from the Cryptocurrency Exchange whenever it is live or you can use the Online Bitcoin Exchange whenever needed. For those who love to take risks, spread betting is the best option for them.