There are two main ways eToro’s 10 million+ users can gain investment exposure to the exciting world of cryptocurrencies: you can either buy any of our 12 types of cryptoassets directly on the platform, or trade against their prices in our markets (plus take advantage of crypto crosses, such as ethereum vs bitcoin). To better understand your options, we have outlined the differences between the two approaches, as well as the advantages of each. After all, as we say at eToro: “Crypto needn’t be cryptic.”
Trading Cryptoasset Prices Using CFDs
Over five years ago, in 2013, eToro took its first foray into crypto trading when we launched our bitcoin market. Here you can open and close positions on the price of bitcoin via a Contract For Difference (CFD) just like you can with our currency or forex markets, equities markets, and other asset classes. Simply put, a CFD is a form of derivative trading. CFD trading enables investors to take a position on a range of financial instruments without owning the underlying asset, and is exempt from stamp duty (though not free of all tax). The main feature is being able to go long or short with leverage.
Those who use CFDs can also benefit from “leveraging”, as mentioned above. This is the ability to increase the potential profits you can make against the initial outlay, in exchange for increasing the risk. Therefore there is a potential for bigger losses. This feature can make CFDs particularly appealing for short-term traders.
You can now trade many other cryptoassets on eToro in the same way you can bitcoin. However, the only users who can trade CFD leverage positions are our platinum clients. We have CFD markets for all 12 of the cryptos we currently offer – including for ethereum, XRP, stellar, NEO, ethereum classic, dash, and litecoin. (A CFD position for other cryptos only exists as a short / sell option or buy position with a leverage of 1:2). We’ll be looking to add more to our crypto category as the industry continues to grow.
Additionally, you can follow the best-performing crypto traders on eToro and copy their trades. Further, it should be noted that on 1 August 2018 the new rulings about CFDs, as outlined by the European Securities and Markets Authority (ESMA) – Europe’s markets watchdog – came into force. The ESMA measures are designed to protect less experienced investors from incurring heavy losses on complex financial instruments; now, with Negative Balance Protection, investors using CFDs cannot lose more than they have invested. This is an element that was already offered by eToro.
Since launching the bitcoin market in 2013 eToro has dedicated a vast amount of time and effort to expanding our cryptoasset trading capabilities. We have quickly acted on customers’ requests to have the ability to actually buy and sell world-leading cryptoassets, as well as trade against their valuations. As of September 2017 users have been able to purchase all cryptoassets outright, directly from the eToro platform. And in early 2018 we offered to convert customers’ positions from CFD to the underlying asset.
A key difference with buying the assets, as opposed to trading CFDs, is that you will own the coin, token, or asset – you are not just trading against its fluctuations in price. This means, once eToro has launched this capability, users will be able to transfer certain assets to an online wallet or ledger hard drive, exchange it for other cryptos, or even use it to pay for goods and services.
When you purchase coins on eToro you will benefit from all the usual high-quality security and technical infrastructure that is applied across the platform. This includes robust identification checks and fast online verification.
In terms of storage, when you buy cryptos on eToro, we hold them for you in our cold storage (offline) facilities – therefore it is not something you need to worry about. And soon eToro will be offering a digital wallet to facilitate the movement of cryptocurrencies both in and out of the platform.
However, it’s important to note that the trading features we have across our CFD markets will not apply. For example, you can’t set a stop-loss or take-profit limit and look to sell your coins when its price reaches a certain point automatically.
There is no leverage, either, using this approach. This is one of the reasons that short-term traders looking to make quick profits may prefer the CFD markets, while longer-term investors could want to own the actual coins.
It’s important to make clear that if a user either adds leverage to his or her crypto position – i.e. 2:1 (though, again, only platinum clients can use this facility through bitcoin, ethereum, stellar and EOS) – or short sells, that is a CFD. Otherwise, you will automatically buy the crypto outright.
Additionally, you can invest in the eToro Crypto CopyPortfolio, which is effectively a portfolio of real cryptocurrencies combined in one investment strategy.
Here’s a list of the current list of cryptoassets you can trade on eToro: bitcoin, ethereum, XRP, bitcoin cash, EOS, litecoin, stellar, cardano, ethereum classic, dash, iota, and NEO.
In Summary: Two Ways To Trade Cryptoassets On eToro
|Cryptoassets||Crypto CFD Markets|
|Do I actually own the investment asset?||Yes||No|
|Can I use leverage to increase my potential profits?||No||Yes – X2 leverage available for bitcoin and ethereum, as well as EOS and XLM|
|Can I use the eToro take-profits feature?||No||Yes|
|Can I use stop-loss?||No||Yes|
|Can I transfer my CFD positions to coin purchases?||n/a||No|
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 65% 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.
Cryptocurrencies can fluctuate widely in prices and are therefore not appropriate for all investors. Trading cryptocurrencies is not supervised by any EU regulatory framework. The content is intended for information and educational purposes only and should not be considered investment advice or an investment recommendation. Your capital is at risk.