If so, you're in luck because there are now dozens of cryptocurrency brokers active in the online space that allow you to use leverage. To do this, you will once again need to use a CFD broker.
Leverage trading Example
If you are based in the UK, you might be bound by the regulations of the European Securities and Markets Authority (ESMA). If this is the case, it means that you are limited to 2: 1 leverage when trading cryptocurrencies. The limits are in place to protect non-professional investors from large losses.
- With a leverage of 2: 1, you can trade twice as much as you have in your account
- So, a balance of 500 GBP would allow you to buy or sell 1,000 GBP worth of cryptocurrencies
- If your trade drops by more than 50% (1/2), your trade will be liquidated
- This means that you would lose your entire margin of £500
If a leverage of 2: 1 is not enough for your trading needs, you need to consider a cryptocurrency derivatives broker like Crypto Rocket. Such brokers operate unregulated, so you need to be careful. If you take the plunge, you can trade cryptocurrencies with leverage of up to 500: 1, which is huge.
- With a leverage of 500: 1, you can invest 500 times more than in your cryptocurrency broker account
- So, a balance of 500 GBP would allow you to buy or sell cryptocurrencies worth 250,000 GBP
- This would increase your profits by 500 times
- However, if your trade drops by more than 0.2% (1/500), your trade will be liquidated.
Note: Leverage is a risky trading instrument that you should avoid as a newbie. This is especially the case in a cryptocurrency industry that is used to high volatility.
Are cryptocurrency brokers safe?
You've probably heard horror stories of cryptocurrency brokers being hacked and customers subsequently losing all their funds. While a number of brokers have previously covered these losses, many have not. The overarching concern is that much of the storage space for cryptocurrency brokers operates unregulated.
As such, you have no recourse if something goes wrong. The good news is that some brokers actually hold a license with the UK FCA or CySEC in Cyprus. Others also have a license with ASIC in Australia, which means you have oversight on multiple fronts.
With this in mind, we recommend that you take the following considerations when choosing a new cryptocurrency broker to ensure that your money remains safe.
- Cold Storage: if you are using a traditional cryptocurrency broker that allows you to buy and own digital coins directly, you should check if the platform uses cold storage. This is where funds are stored offline, so the likelihood of an external hack is virtually non-existent.
- Two-factor authentication: two-factor authentication (2FA) provides an additional layer of security for your brokerage account. In short, you must enter a unique code that is sent to your cell phone each time you perform a key account function. Crucial to this is logging in and withdrawing funds.
- Multi-Sig Wallets: if the cryptocurrency broker uses multi-sig wallets, it means that multiple signatures are required for the platform to process withdrawals. This is again an important protection against third-party hackers
- Encrypted Data: If you plan to deposit money using a traditional debit or credit card via Exness deposit methods, you need to make sure that the broker's website encrypts data. This will prevent your card data from falling into the wrong hands.