How Bitcoin Spread Betting Works

S.Ateljevic image
· 18 Apr 2022

If you’re new to the world of investing, chances are you don’t know how Bitcoin spread betting works. That’s why we’ve put together the following guide to help you make money while spread betting on Bitcoin.

In this article, we’ll take a look at how spread betting works and how you can use it to your advantage. We’ll also cover the risks involved so that you can make an informed decision before you start trading.

What Is the Spread in Cryptocurrency Trading?

The spread refers to the difference between the bid and ask price. Unlike traditional stock trading, spread betting allows you to speculate on whether the price of an asset will fall or rise. You’re not actually buying the assets. Instead, you’re using a derivative strategy to make predictions about the market’s future. You can use spread betting to speculate on different financial markets such as options, CDFs, forex, indices, commodities, or shares.

Bitcoin is a unique asset to bet on because its price is so volatile. In a single day, the price of Bitcoin can rise or fall by hundreds of dollars. This makes it perfect for spread betting because you can make a lot of money if your prediction is correct. However, you can also lose a lot if you’re wrong.

In Europe and the UK, Bitcoin spread betting is legal. In fact, the UK labels the practice as gambling and designates it as a tax-free activity. However, spread betting is prohibited in the United States, Japan, and Australia. That’s not likely to change in the near future despite the surging Bitcoin adoption rate.

How Does It Work?

Cryptocurrency spread betting is similar to regular spread betting. You place a bet on whether you think the price of Bitcoin will go up or down, and then you wait for the market to move. If your prediction is correct, you make money; if not, you lose funds.

Here is a more detailed explanation of the simplest Bitcoin spread betting strategy:

  • The first thing you need to do is pick the cryptocurrency (or cryptocurrency pairs) you’d like to bet on.
  • The good news is that you don’t need to have a Bitcoin wallet or set up an account on a crypto exchange platform. Simply pick a spread betting platform and make a deposit.
  • Once you’ve done that, it’s time to look at the market and make your predictions. If you think the Bitcoin price will rise, you should go long, and if you think it’s going to go down, you should go short.
  • Decide what amount of money you wish to invest on every point of movement, also known as the stake, and keep an eye on the timescale.
  • Manage risk by choosing take-profit levels and stop-loss levels.
  • Finally, place your trade. In general, you can close spread betting trades at any moment regardless of the Bitcoin bid and ask price.
  • Now, determine your profits or losses by subtracting the settlement price from the opening price and multiplying the result by the stake.

What Are the Risks Involved?

Spread betting is a high-risk investment, and it’s essential to understand the risks involved before you start trading.

First of all, you can lose more money than you’ve deposited if your trades go wrong. If you have a low tolerance for risk, you’re better off going with Bitcoin options trading, as it’s considered much safer.

Secondly, the cryptocurrency market is incredibly volatile, so your predictions could be off by a large margin.

Then, you need to remember that with Bitcoin spread betting, you’re not actually buying or selling Bitcoin. You’re just betting on price movements. That means that you can’t rely on traditional analysis techniques to predict the market’s movements.

Finally, remember that a spread bet is a leveraged trade. Since you’re only required to deposit a small share of the trade’s total value, both gains and losses will be magnified, and you might end up chasing losses.

Despite the risks, Bitcoin spread betting can be a great way to make money. Just remember that spread bets on cryptocurrencies are similar to other kinds of spread betting in that they have a predetermined time limit (in days or months), after which they will automatically close unless you cancel them sooner.

Bitcoin Spread Bet Example

Here is an example of how Bitcoin spread betting works:

Let’s say that you deposited £100 on a spread betting platform, and you want to bet £0.50 on Bitcoin going up. If the price of Bitcoin rises by £0.50, your bet will have won, and you’ll get paid out at the end of the trade. If the price goes down by £0.50, you’ll lose your £0.50 stake plus fees. Once you place your trade and the market is closed, you can calculate your profit or losses.

Bottom Line

Despite the risks involved, Bitcoin spread betting offers a range of advantages. It’s a high-risk investment, but it has the potential to make you a lot of money if you know what you’re doing. In addition, there’s no need for you to open a crypto wallet or deal with Bitcoin exchanges, as you won’t be buying or selling but simply speculating. Finally, you can write off taxes if you’re a UK resident. So, if you’re feeling adventurous, give spread betting a try.

FAQ

How does a spread bet work?

Cryptocurrency spreads refer to the difference between the quoted buy and sell prices of the currency. Spread betting is a trading strategy that involves the use of financial derivatives to speculate on price movements. In other words, you’re betting on whether the price of an asset will go up or down.

How does spread betting make money?

You’re essentially betting against the broker when you make a spread bet. The brokers make their money by taking a small percentage of your winnings. You earn when the price of the asset moves in your predicted direction.

Is spread betting a good idea?

Spread betting, including Bitcoin spread betting, involves many risks, but it can be profitable and a good way to make money if you know what you’re doing. Before getting started, make sure you understand the risks and only trade with money you can afford to lose.

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