What are Bitcoins?
Bitcoins are a relatively new thing and many people don’t know what they are. Bitcoins are a virtual cryptocurrency with the creation and transfer of Bitcoins being based on an open-source protocol which is independent of any central authority. Users are able to earn Bitcoins by using computing power to solve the cryptographs, with there being a set limit of coins released and ever increasing difficulty level making money by mining Bitcoins is only really feasible for those with very powerful computing devices. The price of Bitcoins has risen in value over the past few years, with many believing that Bitcoin has the potential to revolutionise the global monetary system. While the Bitcoins have risen substantially since their introduction, the e-currency has been very volatile and in April 2013 the price of Bitcoin dropped from $266 per coin to a low of $50 before recovering a substantial amount of their value.
Bitcoin Trading: Some Background
It has been possible to trade Bitcoins for a considerable amount of time, with their being a number of exchanges that allow individuals to exchange their Bitcoins for real physical currency and vice versa. But trading opportunities have been limited with these exchanges only allowing individuals to long on Bitcoin’s by holding the virtual currency themselves. This has significantly limited trading of the currency as many people have wanted to short sell the currency when they believe it had become overvalued.
It wasn’t until this year that trading Bitcoins both long and short became a real possibility after a number brokerages and firms began to introduce Bitcoin derivatives. Plus500 and AvaTrade introduced Bitcoin Contracts-for-Diference (CFD’s) which have allowed clients of the brokerages to go both long and short in the Bitcoin/USD. CFD’s are a financial derivative which allow individuals to trade financial instruments without owning the underlying asset which has lead to more people actively trading BTC/USD. However as there has been no way to short actual Bitcoins the spreads and trading conditions haven’t been particularly brilliant with both of the mentioned brokerages quoting spreads in excess of $1 in order to effectively manage their risk.
In addition to Contracts-for-Difference, traders have been able to go both short and long in Bitcoin/USD by depositing cash with non-exchange traded Binary Options brokerages. A number of these brokerages have begun to offer the Bitcoin/USD as trading instrument, which has helped them attract new clients who wouldn’t have otherwise been interested in Binary Options. Binary Options have got a flack as a product and many people believe they don’t offer good value for money with the odds being stacked heavily in the brokerages favour. Both CFD’s and non-exchange traded Binary Options aren’t available to US customers which means those based in the States will be unable to use them in order to trade BTC/USD.
The Future of Bitcoin Trading
It appears that traders will be soon be able to go long and short on the Bitcoin/USD with BTC-e the world’s five largest Bitcoin exchange announcing that they would be introducing Bitcoin trading via MetaTrader 4. At the moment the product is in its trail phase with individuals be able to trade Bitcoins using a demo account, with leverage currently set at 3:1. If the trial phase goes well BTC-e intends to make it possible to trade Bitcoins through MetaTrader 4, this could potentially revolutionise the Bitcoin trading environment as it would allow brokerages and traders to go long and short in Bitcoin. If BTC-e does end up launching the product for real, it is very likely that other exchanges would follow suit and begin to offer their own trading product. With Bitcoin prices being highly volatile their will plenty of trading opportunities and Bitcoin trading could take off in a big way. There is huge demand for such a product and it is only a matter of time before Bitcoin trading takes off in a big way.