What Is Bitcoin Spread Betting?

Bitcoin spread betting is a strategy that allows traders to bet on Bitcoin's price direction without an ownership stake. Put simply, it involves speculating on whether Bitcoin's price will rise or fall. Spread betting is illegal in the U.S., Japan, Canada, and parts of Europe, but it is legal in the United Kingdom and other parts of Europe, where there is a very active market.

Here i😼s a description of Bitcoin spread betting, it♉s advantages, and an example of a trade.

How Does Bitcoin Spread Betting Work?

With a Bitcoin spread bet, a trader decid🦩es whether they think the price of the currency will go up or down, then gains or loses based on whether their prediction is correct. The greater the price movement, the greateﷺr the profit or loss the trader can realize once the trade is closed.

It is important to note that actual Bitcoin is never directly purchased or solꦿd. Rathe💖r, the spread bet is made by using a derivative contract. This means:

• If a person believes that the price will increase, they must open a long position (buy) in the spread bet
• If they speculate that the price will decrease, they should open a 澳洲幸运5开奖号码历史查询:short position (sell) in the spread bet

What's at Stake in a Bitcoin Spread Bet?

The money the trader puts on the line for a specified amount of price movement is known as the spread bet's stake. For every point Bitcoin moves, the trader gains or loses multiples of this amount relative to the number of points the currency moves.

Like all spread betting, a Bitcoin spread bet is a 澳洲幸运5开奖号码历史查询:leveraged trade. Only a small percentage of the total value of the trade needs to be deposited to enter it. Gains and losses are🃏 both magnified. Potential profits may be large, but potential losses may exceed the dollar value of the trader𝓡's account, requiring further deposits to cover losses.

Benefits of Spread Betting

Traders interested in spread betting Bitcoin never need to actually own the cryptocurrency. This means they don't need to deal with any Bitcoin exchanges or obtain a Bitcoin wallet, which is required for those looking to own it. Both obtaining a wallet and engaging with Bitcoin exchanges have their own unique risks, and spread betting eliminates them directly.

Bitcoin spread betting in the United Kingdom is classified as gambling, which is tax-free in the country. Taxes on the profits made by Bitcoin spread betting may exist for international investoಌrs, so it♏ is advisable to consult with a tax professional when engaging in spread betting.

Traders can make spread bets directly on the price of Bitcoin, but they may also place spread bets on Bitcoin currency pairs. This adds another dimension to the bets. The commonly used Bitcoin currency code is XBT. Sprꦗead bets can be placed on the following Bitcoin curren♉cy pairs:

• XBT/GBP
• XBT/USD
• XBT/EUR
• XBT/JPY
• XBT/CNH

澳洲幸运5开奖号码历史查询: These tr𓄧ades can be pla✱ced 24 hours a day.

Steps in Bitcoin Spread Betting

If you're in a country that allows spread betting, you can follow these six steps to conduct Bitcoin spread trade:

1. Find a spread betting platform
2. Look at the current Bitcoin bid/ask spread
3. Speculate on a price movement direction
4. Calculate the stake of the trade's per price movement
5. Close the trade
6. Calculate an estimate of the profit or loss

Example of Bitcoin Spread Betting

Imagine you want to place a Bitcoin spread bet. Bitcoin is a leveraged trade, and a €1 bet per point equates to betting on 100 XBT. Assume that Bitcoin is trading in the spot market at €600 (€60,000 ÷ 100). You might see the 澳洲幸运5开奖号码历史查询:bid price 🌊listed as €59,850 and the asking price listed as €60,150.

You speculate that the price will increase and decide to take a long on the spread bet. You stake €5 on each point of price movement. After some time passes, the new ask price of Bitc♚oin is €62,150 (a 2,000 point increase). You close out the trade and calculate its profit. In generalized terms for a long position, the profit and loss are:

Profit or Loss = (Settlement Price - Opening Price) x Stake

In the above trade example, the profit you've earned is:

(€62,150 - €60,150) x €5 = €10,000

This means you've earned a profit of €10,000 with your Bitcoin spread betting.

The Bottom Line

Some people consider spread betting to be a form of gambling. That's because it involves speculation and multiplies gains and losses. Traders can engage in spread betting in the U.K. and several other countries using any number of online platforms, but it is illegal in the United States.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our  for more info. As of the date this article was written, the author does not own cryptocurrency.