Crypto Currency CFDs
Cryptocurrencies have attracted the attention of investors and traders, beginners and experts, believers and sceptics. No other asset in history has recorded such jaw-dropping growth, with Bitcoin prices skyrocketing from around $400 in January 2016 to above $4,000 by August 2017 only to cross $19,000 in December 2017. However, digital currencies are among the most volatile assets, with Bitcoin falling to under $4,000 in March 2019. This volatility offers many opportunities and opens a number of trading strategies, particularly when combined with leverage, however traders should be aware that leverage multiplies negatives as well as positives and could lead to significant losses.
Physical Ownership vs CFDs
A CFD (Contracts for Difference) is where a buyer and a seller agree to pay in cash any difference in prices as the value of the cryptocurrency rises or falls, instead of buying the underlying asset itself. So, a contract is made between the two parties, based on their expectations of the price of Bitcoin on a specific future date. Read our article on Physical Crypto vs CFDs
Advantages of CFDs
- No Wallet (Cryptos cant be stolen)
- Multiple Asset Trading (Cryptos, Forex, Commodities etc)
- FCA Regulated Broker
*The use of leverage can magnify profits but it can do the same for losses.
Contract Information
Leverage
Leverage allows you to hold a larger position than the initial cash deposit. Your initial outlay is supplemented to increase the value of your underlying investment. The higher the leverage, the larger the position the trader can execute for the same amount of the initial deposit.
Leverage increases the potential of high returns when the market moves in their favour. However, please note that leverage will act against you when the market moves in the opposite direction to your prediction.
Leverage Levels
Different leverage levels apply to different account types.
Margin Requirement
When an investor opens an account with a broker, an initial deposit is required in order to open a position in the market. The required cash deposit will act as a deposit to cover any credit risk. Depending on the agreement, the investor could be able to leverage up to a certain limit.
The margin requirement for a forex trade is calculated using the following formula:
Margin = (Lot Size * Contract Size * Opening Price) / Leverage
The examples below are based on a Standard/Classic account with a leverage of 2:1.
Note: Interest is not required to be paid on the borrowed amount, but if the investor decides to hold his position overnight, interest will be charged as the rolled over rates on the total positions held.
Margin Call
Margin Call is a level set by a brokerage that defines the minimum amount of money required to trade in the market. When your account falls below the margin call level, you will need to make an additional deposit to maintain your positions. Alternatively, you can close some of your positions to reduce your required margin. At Blackwell Global, Margin Call is set at 80%.
Stop Out Level
In the event you are unable to maintain sufficient funds in your account after hitting Margin Call, and if your account value depreciates to the Stop Out level, all your open positions will be closed automatically to prevent further loss to your capital. At Blackwell Global, Stop Out level is set at 50%.
Swaps
Often referred to as Rollover Interest, swaps are charged when holding onto a positon overnight due to differences in interest rates between the base currency and the quote currency.
Blackwell Global crypto trade on a “spot” basis. All trades are settled in two business days from inception as per market convention.
Swaps are automatically calculated and settled at 21:59 GMT (Server Time 23:59) on a daily basis.
Blackwell Global charges swaps on Crypto products as calculated by the following formula:
EOD Crypto price x position size in lots x annualised interest rate.
For example using our current interest rate of 20%
BTCUSD at $7000 x 1 x (0.2/360) = $3.88
If the base currency of the symbol is different from the deposit currency, the swap is converted into the deposit currency.
Any open positions held at eod on Friday will be liable to a triple charge.
Blackwell Global does not arrange for physical delivery.
