In the world of betting and gambling, we have come across many new terms and one among them is spread betting. It is a derivative strategy in which the individuals do not own the assets they are betting on such as stocks or other commodities. So for that, there are two prices that are quoted. Similar to stock spread betting, there is cryptocurrency spread betting. With the evolution of digital currency and hike in its popularity there has opened many avenues for betting on cryptocurrency and that has yielded good results for people.
With any cryptocurrency spread bet the trader decides on whether the price of that particular crypto will increase or decrease. If the bettor believes that the value of that crypto will increase then there must be an open in the long position spread bet. Now let us see how the whole idea of cryptocurrency spread betting works.
What Is Spread In Cryptocurrency Trading?
The spread in cryptocurrency trading is the difference between the sell and buy price that has been quoted for a particular cryptocurrency. Similar to various financial markets when you initiate a position in the crypto market you will be provided with two different prices. There if you wish to open a short position you will have to trade at the selling price which is slightly below the market price. And if you wish to initiate a long position then you will have to trade at the buy price with the crypto value which is slightly above the market price.
How does Cryptocurrency Spread Betting work?
In this segment we will be learning about the way spread betting works in digital currency. But before that, we need to know that spread betting has been labeled illegal in many countries like Japan, Australia, and the United States. But it is still legal in the United Kingdom and other parts of Europe where spread betting finds a very active market. Let us take Bitcoin for instance and understand the way spread betting works in Bitcoin.
In 2009 a digital currency called Bitcoin was formulated. This cryptocurrency is the world’s first successful digital currency and is decentralized and has very minimal transaction fees. Along with that, it offers a huge number of anonymity to its users. As we all know these are all digital currencies so no physical Bitcoin exists in real life. Everything is operated through the blockchain technology. With Bitcoin spread betting the person trading makes a choice on whether the price of the Bitcoin is going to increase or decrease. And based on their predictions they either gain profit or face loss. The bigger the price movement the bigger is the profit or loss and the trader gets to know that only when the trading is closed.
It is very important to note that in spread betting actual Bitcoin is never bought or sold; it is done through a channel of derivatives. If a person wishes to open a short position they will have to trade at the selling price that is slightly below the market price. And if a person wishes to initiate a long position then they will have to trade at the buy price with the crypto value that is slightly above the market price.
The amount of money that any individual in the queue for any specific amount of price movement then it is termed as “stake” of the spread betting. With every point that the Bitcoin moves, the traders either gain or lose multiples of these amounts that are relative to the number of points that the Bitcoin shifts. Similar to another spread betting, Bitcoin spread betting is also leveraged trade where a small amount of the total trade amount has to be deposited for any individual to enter the trade.
What Is Crypto Spread Fee?
A spread is a fee that is being collected based on the difference between the bid and the offer price, which can be highly fluctuating at times. In other terms, it is a small percentage that is added to your transaction and can vary a little on the basis of the market condition. And this concept when applied to digital currency is called crypto spread fee.
Advantages of Commodity Spread Betting
Traders who wish to do crypto spread betting never need to actually buy or own the cryptocurrency. This means that they will never have to deal with any digital currency exchanges nor hold any crypto wallet (which is needed for those looking to own actual cryptocurrency). Both getting a wallet and engaging with cryptocurrency exchanges have their own risks, and spread betting dispose of them directly. Cryptocurrency spread betting in the United Kingdom is identified as gambling and, thus, is tax-free. Taxes on crypto spread bet profits may exist for international investors, so it is always advisable to consult with a tax expert before engaging in these types of trades.
Traders can make cryptocurrency spread bets directly on the price of crypto, but they may also place spread bets on digital currency pairs, which adds another aspect to the bets. Among Bitcoin the commonly used bitcoin code is XBT. Bitcoin spread bets can be fixed on the following bitcoin currency pairs: XBT/EUR, XBT/USD, XBT/JPY, XBT/GBP, and XBT/CNH. These trades can be placed 24 hours a day.
Digital Currency Spread Betting Example
There are five primary steps associated with a cryptocurrency spread trade. First, look at the current crypto, for example, Bitcoin bid-ask spread, then contemplate on a price movement direction. Next, evaluate the stake of the trader per price movement. Fourth, close the trade, and lastly, evaluate the gain or loss.
As an example, consider a trader who wishes for betting on Bitcoin price. Bitcoin is a leveraged trade, and a $1 bet per point associated with betting on 100 XBT. Consider that bitcoin is trading in the market at $600. A trader may analyze the bid price listed as 59,850 and the ask price listed as 60,150. The trader assumes that the price of bitcoin will elevate and decides to go long the spread bet. They decide to stake $6 on each end of the price movement. Think some time passes and the new ask price of bitcoin becomes 62,150 (2,000 point increase). The trader closes out the trade and evaluates its profit. In generalized terms for a long position, the profit and loss are:
Profit or loss = (settlement price – opening price) x stake
In the above trade example, the profit the trader earns:
Profit = (62,150 – 60,150) x $6 = $12,000
Is Etoro Spread Betting?
Spread betting attracts traders to the lure of quick profit. In reality, with spread betting, one can lose way more than what they have deposited. With these reasons and showing concern for the trader, Etoro does not offer spread betting to the traders at this time.
“eToro is a multi-asset platform which offers both investing in stocks and crypto assets, as well as trading CFDs.”
Cryptocurrency spread betting is a process where the traders who wish to participate will not have to own any crypto assets. All they have to do is analyze the increase or decrease of the asset. If their analysis turns out to be correct they gain a profit and if that analysis turns out to be incorrect then they face a loss.