Cryptocurrency CFDs have emerged as popular and innovative financial instruments in the global financial market, offering traders a unique way to engage with the dynamic crypto sphere without the need to own the actual digital assets. Contracts for difference (CFDs) allow traders to speculate on price movements of popular cryptocurrencies like Bitcoin, Ethereum, and others, leveraging both rising and falling markets.
Eightcap
Plus500
Pepperstone
Axi
FxPro
IGBelow, you can find more information about the best crypto CFD trading platforms in the UK:
- Eightcap provides a choice from over 100 cryptocurrency CFDs, covering major and niche coins like BTC, ETH, ADA, SOL, and more. All are paired against the US dollar. Spreads for BTC/USD start from 170.
- Plus500 enables competitively priced trading with CFDs for over 20 popular cryptocurrencies, including BTC, XRP, ETH, ADA, and BCH. Traders can further diversify their portfolios with the Nasdaq Crypto Index and the Crypto 10 Index.
- Pepperstone delivers favourable conditions for trading 21 or so digital currencies, ranging from high-cap options like BTC, BCH, and ETH to emerging coins like KSM and GLM. BTC/USD spreads start from 14.76 and average 29.86.
- Axi caters to crypto traders with CFDs for 30 popular and niche digital coins, including Bitcoin, Litecoin, and Ethereum. Minimum spreads for BTC/USD are 18 points, with no commissions upon entering and exiting leveraged positions.
- FxPro enables crypto CFD trading through popular platforms like cTrader, MT4, and MT5. The broker provides a choice from more than 30 digital coins, including BTC, ETH, XTZ, NEO, LTC, and more.
- Traders at IG have access to over a dozen leading cryptocurrencies, including BTC, BCH, ETH, ADA, DOGE, and more. Customers can gain exposure to the crypto markets through contracts for difference or turbo warrants.
It is crucial to stress that crypto CFD trading is not allowed for retail consumers in the UK. The Financial Conduct Authority (FCA) has banned the sale, marketing, and distribution of derivatives referencing unregulated transferable crypto assets to non-professional consumers.
The ban includes CFDs, options, and futures. It was implemented to protect retail consumers from the high risks associated with these products, such as extreme volatility and market abuse.
Professional traders can have access to these products under specific conditions, but this requires meeting certain criteria set by the FCA. If you are interested in learning more about the UK’s crypto trading landscape, this publication offers insight into the ins and outs of how locals can trade cryptocurrencies via CFDs.
An Introduction to Cryptocurrency Trading
Cryptocurrency trading involves buying, selling, and exchanging digital currencies like Bitcoin and Ethereum, which operate on decentralised blockchain technology. Unlike traditional currencies, digital coins are not controlled by central banks or governments, making them exceptionally volatile and speculative assets.
Bitcoin, the first cryptocurrency, remains the most widely recognised, and other popular cryptocurrencies include Ethereum, Litecoin, Tether, Dogecoin, and Ripple. These digital assets can be traded in several ways, with the two primary options being:
UK clients can access a variety of crypto trading platforms, including those offering beginner-friendly interfaces, educational resources, and demo accounts to practice trading strategies. However, due to the high-risk nature of cryptocurrencies, traders are advised to approach the market with caution, understanding both the potential rewards and risks involved.
Crypto CFDs 101
As established, crypto CFDs (Contracts for Difference) are financial derivatives that allow traders to speculate on the price movements of cryptocurrencies without owning the underlying assets. Instead of buying or selling digital currencies like Bitcoin or Ethereum directly, traders enter into an agreement with a broker to exchange the difference in the asset’s price between the opening and closing of the contract. CFDs are particularly popular among those looking to leverage market fluctuations without the complexities of managing a digital wallet.
This method enables traders to profit from both rising and falling markets, leveraging tools like margin trading to amplify potential gains or losses. However, this also increases risk, making it essential for traders to understand the mechanics of CFDs before engaging in this type of trading.
The high-risk nature of CFDs, combined with the inherent volatility of cryptocurrencies, means traders must approach this market with caution, using risk management strategies to mitigate potential losses.
Trading Crypto CFDs With Leverage in the UK
Leveraged trading gives investors the opportunity to amplify their potential profits by borrowing funds to increase their position size. For example, with a 1:30 leverage, a position involving a £1,000 investment can control £30,000 worth of cryptocurrency.
This can be particularly appealing in the volatile crypto market, where price swings are common and can generate substantial returns. However, the risks are equally magnified. If the market moves against the trader, losses can exceed the initial investment, leading to significant financial harm.
Given cryptocurrencies’ high volatility, leveraged positions are particularly vulnerable to margin calls. A margin call occurs when a trader’s account value falls below the broker’s required minimum due to trading on borrowed funds, and the investor must deposit more money or sell assets to meet the requirement.
Brokers are also required to provide clear risk warnings about CFDs and assess the suitability of leveraged products for their clients. Negative balance protection is also something one can take advantage of as a UK trader, and it will prevent their account balance from falling below £0. It should be noted, however, that negative balance protection is a safety net that professional UK traders must often waive.
UK Crypto Brokers vs Crypto Exchanges
In the UK, there are two primary platform types for engaging in cryptocurrency trading:
Brokers are ideal for those seeking simplicity and leveraged trading, whereas exchanges cater to users who prioritise asset ownership and variety. The choice between the two depends on individual trading goals, experience, and preferences.
How to Go about Trading Crypto CFDs in the UK?
If you are planning on trading crypto CFDs in the UK, you will not find the process itself to be difficult. We have outlined the major steps below:
- Find a Suitable Broker:
- Register and Verify Your Account:
- Top Up Your Account:
- Analyse the Markets:
- Open the Trade:
- Close the Trade:
Choose a broker that specialises in Crypto CFDs and offers competitive spreads.
Complete the sign-up process by providing the necessary identification documents to comply with regulatory requirements.
Fund your account using secure deposit methods such as bank transfers, credit/debit cards, or e-wallets.
Use technical and fundamental analysis to identify trends and select a Crypto CFD to trade.
Decide whether to go long (buy) or short (sell) based on your market analysis and set your position size.
Monitor the market and close your trade to lock in profits or cut losses.
When selecting a broker, prioritise those regulated by the FCA or European authorities if you are a professional, as they ensure transparency and security. Look for brokers with a strong focus on Crypto CFD markets, offering a sufficient range of cryptocurrencies and advanced trading tools. Ensure they support convenient deposit methods that are suitable for UK-based traders and have low fees.
Brokers Compared by Bitcoin Spread
Crypto CFD Trading Analysis and Strategies for UK Traders
Successful crypto CFD trading relies on a combination of fundamental analysis, technical analysis, and the application of an appropriate trading strategy. This allows UK traders to navigate the volatile crypto market with greater confidence, balancing long-term insights with short-term opportunities.
Fundamental and Technical Analysis
Fundamental analysis involves evaluating the intrinsic value of a cryptocurrency by examining factors such as project developments, adoption rates, regulatory news, global events, and macroeconomic trends. For example, positive regulatory updates in the UK can boost investor confidence, while negative news may lead to price declines.
Another key evaluation method is technical analysis, which focuses on historical price data and chart patterns to predict future movements. British traders often use tools like moving averages, RSI (Relative Strength Index), and Fibonacci retracements to identify entry and exit points. Candlestick patterns and support/resistance levels are also popular for short-term trading.
Crypto CFD Trading Strategies
As for crypto CFD trading strategies, they encompass a variety of approaches tailored to different market conditions and trader preferences. You can check out some of the more popular crypto CFD trading strategies below:
- Position Trading: This is a long-term strategy where traders hold positions for weeks or months, capitalizing on significant market trends. This method requires patience and a strong understanding of fundamental analysis to identify assets with long-term growth potential.
- Day Trading: In contrast to position trading, day trading involves executing multiple trades within a single day, leveraging short-term price movements. It demands quick decision-making and a solid grasp of technical analysis tools like candlestick patterns and moving averages.
- Swing Trading: This strategy strikes a balance between position and day trading, focusing on capturing gains over several days or weeks. Traders rely on technical indicators to identify entry and exit points during market swings.
- Breakout Trading: A strategy that targets price movements beyond key support or resistance levels, aiming to profit from increased volatility.
- Pair Trading: This involves simultaneously buying and selling correlated assets to hedge against market risk, exploiting price divergences for profit.
- Scalping: When traders employ this high-frequency strategy, they make numerous small trades to capitalise on minor price fluctuations, requiring precision and discipline.
- Hedging: Last but not least, hedging is a risk management technique used to offset potential losses in one position by taking an opposite position in a related asset.
FAQs
Is Crypto CFD Trading Legal in the UK?
Yes, however it is only available to professionals. According to FCA regulations, these instruments are high-risk leveraged products that are unsuitable for retail traders. Thus, brokers that offer crypto CFDs can only target traders who qualify as professionals. Traders are generally advised to resort to the services of brokers that comply with FCA’s guidelines if they are looking for a transparent, secure, and fair trading experience.
What are the risks of crypto CFD trading?
Crypto CFDs are high-risk instruments due to market volatility. Moreover, since they involve leverage, the risk of suffering substantial financial losses is also higher.
How does leverage work in crypto CFD trading?
Leverage allows traders to open larger positions with a smaller amount of capital. For example, with 1:10 leverage, a £100 investment can control a £1,000 position. While leverage can amplify profits, it also increases potential losses, making caution essential.
What types of fees are involved with Crypto CFD trading?
The most common types of fees at UK brokers include spreads, commissions, and overnight financing charges. Brokers may also charge inactivity fees.
Can I Use Demo Accounts for Crypto CFD Trading?
Yes, some UK brokers offer demo accounts where traders can practice Crypto CFD trading with virtual funds. This is an excellent way for beginners to practice trading and test strategies without risking real money.