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Can you profit from spread betting in crypto?
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There are lots of different ways you can trade the cryptocurrency market and spread betting is one of the most used in certain parts of the world. This page explains what spread betting in crypto is, how it works, and whether you can profit from it.
What is spread betting in crypto?
It’s a way to speculate on the price of a cryptocurrency using a tax efficient derivative contract. Spread betting is popular in the UK and parts of Europe, where it offers an alternative way to trade crypto. Just note that it is illegal in some countries, so you can only take this approach if spread betting is allowed where you live.
Spread betting in its simplest form is a bet made by a trader. A trader using this method makes a decision as to whether they believe the price of a particular coin will rise or fall. It is possible to go long (buy) and short (sell) using spread bet contracts. One thing to note is that unlike other types of trading, when using spread betting you do not actually own any coins.
Is cryptocurrency spread betting profitable?
Whether or not you’re profitable will largely depend on your trading capabilities rather than the method you’re using to trade. Using spread betting as your method to trade crypto is a good choice for traders located in countries where it’s legal.
Rules relating to crypto are different around the world but in the United Kingdom and Europe, where spread betting is legal, profits generated from it are tax free. This means you will be able to keep what you make and not have to worry about your profits being eaten into from taxes.
Another benefit of using spread betting is that you won’t actually own any cryptocurrency while trading it. If for example you trade Bitcoin on an exchange, you may need to use a wallet to store your coins and have other fees when buying or selling. With spread betting the only costs you have is the spread (the difference between the buy and sell price).
Using cryptocurrency spread betting is profitable and has lots of advantages over other types of trading. Costs are generally cheaper, taxes are zero, and leverage is easily accessible. One of the downsides to it is prices can be different to that of exchanges and the choice of coins available to trade is usually much lower.
How does spread betting in the cryptocurrency market work?
It works in a similar way to other types of trading methods although it does have some differences. You’ll need to use a specific type of broker to spread bet on crypto before you can start. Below are three key components to a spread betting trade.
- Points. In spread betting, price changes are referred to as points. In the Bitcoin market for example, every dollar move equates to 1 point. Profit and loss is easy to calculate using a simple formula: Profit or loss = (closing trade price – opening price) x stake.
- Stake. When you make a spread bet trade, the amount you are prepared to risk is known as the stake. For example, if you think the price will move up you may stake £5 per point. Every point the market moves up will equate to £5. If Bitcoins price moves up 100 points, you will make £500. If it moves down by 10, you’ll lose £50.
- Leverage. Spread betting is a leveraged product which means you can trade a larger position without having to pay the full value of your trade. To use leverage you open a trade on margin, which is a small deposit and a fraction of the position’s total value. When using leverage, it is possible to lose more money that you initially deposit.
Opening a spread bet trade is easy and can be completed in just a few steps. First you’ll have to decide on the direction you believe a coin is going to move. Next you need to allocate your stake and risk, followed by placing your trade. Finally you can calculate your profit or loss using the formula we mentioned above.
Where can I find a crypto spread betting broker?
Not all brokers let you use spread betting in crypto so you’ll need to make sure you find one that does. Our trading experts have compared the best brokers around and selected the top ones to use to spread bet in the crypto market. You’ll find them listed in the table below and it only takes a few minutes to register an account and start trading.
Should I use spread betting in crypto?
If you are an active crypto trader or investor then using spread betting is a good option. Not only will your profits be free from tax, you’ll be able to trade using leverage, and not have to worry about other costs such as wallets. However, if you are from the United Kingdom, spread betting on cryptocurrencies is only allowed if you’re classed as a professional trader.
Unlike cryptocurrency exchanges, spread betting brokers need to be regulated, which offers you much more protection. Most brokers are regulated by the FCA in the United Kingdom or by other European regulators across the continent. Using one provides more security over your funds as you’ll usually be protected through local compensation schemes. Most exchanges do not offer these kinds of safety nets.
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