How does cryptocurrency trading work?
With IG, you can trade cryptocurrencies through a CFD account – a derivative product that allows you to speculate on whether the chosen virtual currency rises or falls. Prices are displayed in traditional currencies such as the US dollar, and you will never take ownership of the virtual currency itself.
CFDs are leveraged products, meaning you can open a position for a fraction of the total value of the trade. Although leveraged products may multiply your profits, they may also multiply your losses if the market moves against you.
What is meant by the spread in trading virtual currencies?
The spread is the difference between the selling price and the buying price displayed for the virtual currency. Like many financial markets, when you open a position in a virtual currency market, you will be offered two prices. If you want to open a buy position you will trade at the ask price, which is slightly above the market price. If you want to open a sell position, you will trade at the sell price – just below the market price.
What is meant by lots in virtual currency trading?
Cryptocurrencies are often traded in lots - batches of virtual currencies used to standardize trading volumes. Because cryptocurrencies are so volatile, lots tend to be very small: most are just one unit of the base currency. However, some cryptocurrencies are traded in larger lots.
What is meant by financial leverage in trading virtual currencies?
Leverage is a way to gain exposure to large amounts of cryptocurrencies without having to pay the full trade value up front. Alternatively, you can place a small deposit, known as margin. When you close a leveraged position, your profit or loss will depend on the total volume of the trade.
Trading with leverage
Learn more about how leverage works
Although leverage multiplies your profits, it may also bring the risk of magnifying losses – including losses that can exceed your individual trading margin. Therefore, trading with leverage requires it is extremely important to know how to manage your risks.
Learn how to manage your risks
What is meant by margin in trading virtual currencies?
Margin is a major part of leveraged trading. It is the term used to describe the initial deposit you make to open and maintain a leveraged position. When trading cryptocurrencies on margin, remember that your margin requirements will change depending on your broker and the size of your trading.
Margin is often expressed as a percentage of the full position. Bitcoin (BTC) trading, for example, may require a payment of 50% of the total value of the position in order to open. So instead of depositing £5,000, you will only need to deposit £2,500.
Learn more about the benefits of trading virtual currencies
What is meant by a pip in trading virtual currencies?
Points are the units used to measure the movement in the price of a virtual currency. It represents the movement of one number in the decimal place of the price at a certain level. Generally, virtual currencies are traded at the dollar level, so a move from $190.00 to $191.00, for example, means that the virtual currency has moved one pip. However, some cryptocurrencies (with lower values) trade at different levels where a pip represents a cent or even a fraction of a cent.
It is important to read the details on your chosen trading platform to ensure you understand the level at which price movements will be measured before you begin trading.