Strong demand for alternative forms of speculating on cryptocurrency is driving exchanges in the UK to offer cryptocurrency contracts for difference (CFDs) and spread betting, with CMC Markets announcing new products this week.
Initially to be restricted to professional traders, CMC’s cryptocurrency contracts for difference and spread betting products provide an investment similar to derivatives, allowing for greater trading flexibility and leverage.
The company, which is owned by global investment banking giants Goldman Sachs, said the decision to launch these new products was driven by increasing demand from their clients over the last 12 months.
Grant Foley, of CMC Markets, said the firm decided to limit the offering exclusively to its professional clients—for now—since they “recognise that cryptocurrencies can be regarded as a volatile market.”
Contracts for difference are independent instruments, tacked to the price of an underlying market. Traders can buy or sell, without ever owning the underlying asset, and agree to settle at some future date for the difference. Crucially, contracts for difference are traded on margin, providing traders with substantial leverage on each CFD position.
Spread betting is a similar model, but takes the form of a bet or wager, directly with the market-maker. For every favourable point movement, traders win an additional multiple of their per-point stake.
Both these forms of trading are traditionally consider risky—and especially so, when coupled with volatile markets.
In response, Foley urged investors to conduct their own extensive research before deciding whether to invest, saying, “We have built our bitcoin [BTC] and ethereum cryptocurrency offering with our clients in mind. Like all other financial instruments we offer, we always recommend that clients understand the risks and conduct thorough research before trading.”
Yet in spite of the dangers, cryptocurrency CFDs have already proven popular amongst traders on other platforms.
In launching the service, CMC Markets joins the likes of IG, Plus500, Admiral Markets, CityIndex and more, in offering innovative alternatives to owning cryptocurrency outright.
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