The price of Bitcoin will surely continue to fall on the news that all Chinese Bitcoin exchanges will close by the end of September 2017. Here at The Finance Guy, we wanted to share an opportunity to trade on the price of Bitcoin falling.
We found a CFD provider called plus500, who offer contracts on Bitcoin and a collection of other cryptocurrencies. We opened an account, from Australia, and added $150 to try our luck at short selling Bitcoin.
Yesterday, we decided to trade the falling price of Bitcoin. We opened a short position, which means we sold Bitcoin. The price kept falling, and our trade turned from red (loss), to green (profit). Because of the leveraged exposure, our return on deposit was magnified.
As the price of Bitcoin kept falling, the profit on our short trade grew. Plus500 allows us to trade on our unsettled balances. This means that as our trade became more profitable, we had more and more funds available to trade again.
We decided to open another short trade on Bitcoin. As the price kept falling we kept opening new contracts. Below is a phone screenshot from the plus500 mobile app showing the progressive trades
A couple of hours after this the price did start to recover so the trades all closed Unfortunately they weren't quite as profitable as in the screen shot, but still made just under $75 using only $150 of our own funds on deposit.
Today we continued to short Bitcoin as shown from the below screenshot from the plus500 web app.
As you can see, we have also opened a long trade on the Euro. You are able to trade a large range of forex, stocks, commodities and cryptocurrencies. Plus500 does not give any advice, they are purely a trading platform. They make it easy for you to trade on your own investment opinions
If you are interested in learning to trade Bitcoin or one of many other instruments including foreign exchange, stocks and commodities, then it's worth having a look at the plus500 free demo account. This way you can practice without risking real money
Is Plus500 a Scam
Plus500 has set up several offices around the world, and holds official licenses to provide derivative investment securities in:
Plus500AU Pty Ltd (ACN 153301681), licensed by: ASIC in Australia, AFSL #417727, FMA in New Zealand, FSP #486026; Authorised Financial Services Provider in South Africa, FSP #47546. You do not own or have any rights to the underlying assets. Please refer to the Disclosure documents available on the website.
Plus500UK Ltd authorized & regulated by the FCA (#509909).
Plus500CY Ltd authorized & regulated by CySEC (#250/14).
Plus500SG Pte Ltd, licensed by the MAS (#CMS100648-1) and IE Singapore (#PLUS/CBL/2018).
Plus500 is a publicly listed company traded on the AIM section of the London Stock Exchange, and the Stuttgart Stock Exchange. This means that they are legally required to provide fully audited financials. This gives us the impression that Plus500 is a trustworthy company
You Can Manage Your Losses With Plus500
At the peak of our Bitcoin Cash trading, we had turned our $100 into over $500. Unfortunately we did not close our trades at the peak. The price of Bitcoin cash turned and the upward market turned volatile.
Our trades closed leaving us with $447.35 on deposit. That's still 347.35% return for one day of trading. When these trades closed, we made a withdrawal of $150. We now have almost $300 on deposit, and a 50% gain in our bank account
Our trades automatically closed because we had placed trailing stop orders on them. A trailing stop order allows you to automatically close your trades if the market moves against you by a certain amount. Plus500 suggests the size of your trailing stops, but you can adjust them yourself.
Plus500 also allows you to place stop loss orders. These will automatically close your trade if the market moves backward to a certain price. They will suggest a price, but you can adjust it yourself. You can use a combination of stop losses and trailing stop orders to manage your losses. An example is shown below:
Webtrader screenshot open trade Bitcoin CFD with Stops
In the trade shown above, we have decided to sell Bitcoin and go short on a CFD. We put up $43.29 of our own funds for this trade. As the price of Bitcoin did in fact drop, the trade went into profit of $24.18 at the time of the screenshot (21/8/17 5:26pm AEDT) That's a gain of 55.86% on our deposit
As we can't predict the future, we don't know if the price will keep falling or if it will turn around. So we have placed a stop order at a price of US$4,080. The buy price for Bitcoin at this time is $4048.63. This means the market will need to go up by $33.37 for our trade to close
We are hoping the price of Bitcoin will drop further and give us more gains, but if we are wrong and the price goes back up to $4,080, then our trade will close at a profit of $13.11. We will make a profit of 30.28% if the market moves against us.
As well as the stop loss, which sets the worst case outcome, we have also set a trailing stop of 7,500 points or $75. Our trade is for 0.25 Bitcoin, so this represents a change of $23.67 on our deposit. At this time the original stop loss will close our trade before the trailing stop.
If luck is on our side, and the price continues to fall, then the trailing stop will follow it down. The $75 stop is set by the lowest price Bitcoin reaches while the trade is active. The automatic closing price will drop if the price of Bitcoin keeps falling.
Using stops means that we do not need to spend all our time watching trading screens. This trade might close at a profit of 30.28%, or it might follow the market for even better returns. From this point we don't have to do anything.