Buying Bitcoin vs Bitcoin trading
Buying Bitcoin vs Bitcoin trading
There are two main ways to invest in Bitcoin online; you can open a virtual wallet and buy Bitcoin through the blockchain at its current market value or you can trade on price movements of Bitcoin by opening a Spread Betting or CFD Trading account.
When you buy Bitcoin on a digital asset exchange, it is similar to investing in any other physical asset and you will own the underlying instrument which you can then sell at a later date, should the value of the asset rise.
When you trade Bitcoin as a Spread Bet or CFD, you are speculating on the price movement of the underlying Bitcoin market. The price of Bitcoin will be quoted in established currencies, primarily USD, and you will not own the underlying instrument. Additionally you will be trading on leverage which allows you a greater market exposure without tying up large amounts of capital.
What are the benefits of CFD trading and Spread Betting on Bitcoin markets?
- When you trade Bitcoin you can go long as well as short
- Spread Betting and CFD Trading are a tax efficient form of investment. Spread Betting and CFD Trading are exempt from UK stamp duty. Spread betting is also exempt from UK Capital Gains Tax
- You won’t own the underlying asset so don’t need to set up a virtual wallet
- When you Spread Bet or trade CFDs on Bitcoin you are trading on leverage, this means you have a larger exposure to the market with less upfront capital. Remember leverage can magnify profits as well as losses.
What is involved in actually buying Bitcoin?
- When you buy Bitcoin you own the underlying asset and will purchase your chosen amount of Bitcoin at full market value
- You will pay capital gains tax on any profits
- You will purchase Bitcoin on a digital asset exchange, this will require you to open a virtual wallet to store your Bitcoin
- It can be expensive to withdraw or fund your virtual wallet, some exchanges charge fees for doing so
- Setting up an account and arranging purchase of Bitcoin can be time consuming and overly complicated
Is Bitcoin risky?
Bitcoin is currently one of the world's most volatile markets and while this represents opportunities for traders it can also present risks. Whether you buy or trade Bitcoin there are some risks involved in the digital currency that you should be aware of.
- Volatility can be extreme and there are likely to be sharp price fluctuations for the foreseeable future
- When you trade on leverage, both your profits and losses are magnified
- As Bitcoin is such a new market there is less mainstream consensus and adoption than for more traditional currencies and financial instruments
- Bitcoin may not be accepted/adopted by certain governments
- Bitcoin may be replaced by alternative cryptocurrencies in the future
- Nobody can predict with certainty how Bitcoin will fare in the future, whether it will fork or how it will react to a major financial crisis
If you have any further questions about how to trade on Bitcoin, please see out Bitcoin FAQs,
What is the City Index policy on Bitcoin forking?
In the event that the current bitcoin splits into two, new bitcoins are created, this is known as a hard fork. We will generally follow the bitcoin that has the majority consensus of cryptocurrency users and will therefore use this as the basis for our prices. In addition we will also consider the approach adopted by the exchanges we deal with, which will help determine the action we take.
We reserve the right to determine which cryptocurrency unit has the majority consensus behind them.
As the hard fork results in a second cryptocurrency, we reserve the right to create an equivalent position on client accounts to reflect this. However, this action is taken at our absolute discretion, and we have no obligation to do so.
If the second cryptocurrency is tradeable on major exchanges, which may or may not include the exchanges we deal with, we may choose to represent that value, but have no obligation to do so. We may do this by making the product available to close based on the valuation, or by booking a cash adjustment on client accounts.
If, within a reasonable timeframe, the second cryptocurrency does not become tradeable, then we may void positions that had previously been created at no value on client accounts.
Over periods of substantial price volatility around fork events, we may take any action as we consider necessary in accordance with our terms and conditions including suspending trading throughout if we deem not to have reliable prices from the underlying market.
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