MS offers bitcoin derivatives trading in the form of CFD trading. All of MS’s products offer ways to trade bitcoin with enhanced security and flexibility. Moreover, they operate in different ways and appeal to different traders.
BITCOIN CFD TRADING
CFD trading enables you to speculate on whether bitcoin will move up or down without any of the actual crypto-currency trading hands. The greater the price movement of the bitcoin, the greater the profit (or loss).
Whenever a bitcoin CFD (or contract for difference) is traded, an agreement is made to exchange the difference in value of bitcoin from the time when the contract begins and the time when it ends. As with any CFD trade, the underlying asset – in this case bitcoin itself – is not traded, but how much is gained (or lost) from the trade is dictated by the amount when the trading ends.
A CFD stipulates that the difference in value of bitcoin from when the contract is opened to when it is closed must be paid. If you wish to end your bitcoin CFD, simply place a trade of the same value in the opposite direction.
Traders who trade CFDs on bitcoin never actually own any crypto-currency. For this reason, many of the potential difficulties and risks associated with bitcoins are negated:
There is no need for a bitcoin wallet.
Traders dealing in CFDs do not need to trade via an exchange, meaning that security problems associated with exchanges are not a factor.
CFD trades can be opened as either long, indicating that the trader believes bitcoins will increase in price, or short if the trader believes that bitcoin’s value will fall.
BITCOIN CFDS – THE RISKS
Bitcoin CFD trading losses can run indefinitely. Most CFDs are leveraged and bought on margin, which means that you are exposed to the full value of the contract for a fraction of its total cost.
Bitcoin is much more volatile than traditional ‘fiat’ currencies, thanks in large part to the relative scarcity of bitcoin and lack of a central bank’s guiding hand. A leveraged position on a currency that has been known to drop over $200 overnight – as it did back in December 2013 – can be a very risky proposition.
Traders therefore need to ensure that risk management is set up on every trade. MS offers a number of ways to manage your risk. ‘Guaranteed stops’ (an optional feature that comes at a price), can cap your maximum risk if the bitcoin’s value suddenly drops (or leaps) against an open position. Price alerts warn traders when a target is breached. Seminars and guides offer a comprehensive view of how to trade with as little risk as possible.