Wednesday 16 September 2020 11:14 amFXCM Talk

Is crypto trading making you overweight? Use a basket

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Craig has worked in the foreign currency and CFD trading industry for the last 10 years, and is currently the CFD Product Manager of FXCM, where he primarily oversees the suitability and expansion of the tradeable product line.

Cryptocurrencies haven’t disappeared like some thought they would. If anything, its appeal as an asset class continues to grow. Customer interest in cryptocurrencies has spiked during all the volatility surrounding the COVID-19 pandemic. Cryptocurrencies are here to stay.

So, you want in… but where to begin? There are two questions one needs to answer: how to jump into crypto and then, what do you trade.   

There are a couple of different options for trading cryptos. You can buy physical cryptocurrencies with a provider that gives you a “wallet.” This is the best option if you would like to physically spend cryptocurrencies or if you believe in crypto as a long-term replacement to fiat currencies. If you have a more short-term view on cryptocurrencies, there is another option worth considering.

Consider trading CFDs. 

A CFD, or contract for difference, is a regulated financial product that allows you to speculate on the price of an underlying asset. If you think cryptos are going up, you buy a crypto CFD. If you think cryptos are overvalued, you sell a CFD. Regulated CFD brokers like FXCM allow customers to trade cryptos alongside forex, commodities, and stock indices – all from one account. 

One of the advantages of trading via CFDs is that you don’t need to worry about storing your physical crypto in a “hot wallet”. Numerous high-profile hacks in many of the largest crypto exchanges have set alarm bells ringing. When retail clients trade CFDs with regulated brokers,  their funds are held in segregated bank accounts and are subject to pricing and execution governed by strict regulation. 

The second question is what to trade. With all the different coins available, all with different pricing and volatility, it can be difficult to know which coin to trade long or short. Bitcoin has the best name recognition, but is it going to be the biggest mover? Why not trade Ripple or Litecoin? Do you know what influences the price action of each? 

To address these questions, there has been a rise in cryptocurrency baskets. This is a grouping of numerous cryptocurrencies like Bitcoin, Ether, Litecoin and others, all into in one tradeable product. 

The advantage is that you do not need to pick a specific crypto to trade – you just pick the direction. If you think cryptos are undervalued and poised for a rally, go long. If you think tough times are ahead, go short via a crypto basket. Investors should remember that cryptocurrencies have a higher volatility than other products and market liquidity will fluctuate, which could result in jumps in price and slippage. 

Hedging your base investment against a basket lowers trading costs and reduces the risk of adverse movements in a single cryptocurrency potentially amplifying losses.  

However, be mindful of complicated weightings. If five products make up a basket, different brokers may place different “weights” on each crypto, so basket traders may unknowingly have much more exposure to a single crypto. 

FXCM has recently launched its crypto basket – named CryptoMajor. Our basket has an equal weighting for each coin, which ensures that the product is not overly exposed to just one crypto. Whether Bitcoin, Ripple, Litecoin, Bitcoin Cash or Ether are making headlines, you are still part of the action.

The CryptoMajor basket is available on all of FXCM’s flagship platforms plus MetaTrader 4, NinjaTrader, and via API. Learn more about cryptocurrencies trading and their inherent risks at www.fxcm.com/uk/cryptocurrency

FXCM has recently announced the launch of two new cryptocurrency CFDs on the platform – EOS and Stellar (XLM). With these additions, FXCM now offers CFD trading options for the majority of the world’s most popularly traded cryptocurrencies.  

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 

75.38 per cent of retail investor accounts lose money when trading CFDs with this provider. 

You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

FXCM is a leading provider of online foreign exchange (FX) trading, CFD trading, and related services. Founded in 1999, the company’s mission is to provide global traders with access to the world’s largest and most liquid market by offering innovative trading tools, hiring excellent trading educators, meeting strict financial standards and striving for the best online trading experience in the market. Clients have the advantage of mobile trading, one-click order execution and trading from real-time charts. In addition, FXCM offers educational courses on FX trading and provides trading tools, proprietary data and premium resources. FXCM Pro provides retail brokers, small hedge funds and emerging market banks access to wholesale execution and liquidity, while providing high and medium frequency funds access to prime brokerage services via FXCM Prime. FXCM is a Leucadia Company.

Trading Forex/CFDs on margin carries a high level of risk and may not be suitable for all investors. Leverage can work against you. The products are intended for retail, professional and eligible counterparty clients. Retail clients who maintain account(s) with Forex Capital Markets Limited (“FXCM LTD”) could sustain a total loss of deposited funds but are not subject to subsequent payment obligations beyond the deposited funds but professional clients and eligible counterparty clients could sustain losses in excess of deposits. Clients who maintain account(s) with FXCM Australia Pty. Limited (“FXCM AU”), FXCM South Africa (PTY) Ltd (“FXCM ZA”) or FXCM Markets Limited (“FXCM Markets”) could sustain losses in excess of deposits. Prior to trading any products offered by FXCM LTD, inclusive of all EU branches, FXCM AUFXCM ZA, any affiliates of aforementioned firms, or other firms within the FXCM group of companies [collectively the “FXCM Group”], carefully consider your financial situation and experience level. If you decide to trade products offered by FXCM AU (AFSL 309763), you must read and understand the Financial Services Guide, Product Disclosure Statement, and Terms of Business. Our FX and CFD prices are set by us, are not made on an Exchange and are not governed under the Financial Advisory and Intermediary Services Act. The FXCM Group may provide general commentary, which is not intended as investment advice and must not be construed as such. Seek advice from a separate financial advisor. The FXCM Group assumes no liability for errors, inaccuracies or omissions; does not warrant the accuracy, completeness of information, text, graphics, links or other items contained within these materials. Read and understand the Terms and Conditions on the FXCM Group’s websites prior to taking further action. 

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