The rise of Bitcoin has meant that virtual currencies have been very much in the spotlight recently, with those in the FX and trading industry continuing to look for ways to capitalise on the growth of interest in cryptocurrencies. Financial Conduct Authority authorised and regulated Plus500 the first firm to capitalise on the ever increasing interest in virtual currencies when they launched a Bitcoin CFD back in March of this year.
Plus500 has continued to embrace virtual currencies and has of today begun to offer a Litecoin CFD product available to trade on their proprietary platform. Litecoin has positioned itself as an alternative to Bitcoin, with Litecoin being created in a way which means it is more challenging for high end devices to mine the cryptocurrency. This is meant to make Litecoin more democratic in the sense it should be easier for those using standard hardware to mine the currency.
Plus500’s decision to launch a Litecoin CFD is very interesting and may have been spurred on by the recent strong performance of Bitcoin. It should be noted that Litecoin has received very little attention in comparison to Bitcoin and attempts to create marketplaces using the Litecoin currency have often run into significant problems. So it remains to be seen whether there will be anywhere as much demand for Litecoin CFD product, however Plus500’s launch suggests a growing interest in virtual currencies in general.
It remains to be seen whether other brokerages offering Bitcoin CFD’s follow Plus500’s suit and begin to offer their own Litecoin CFD product. AvaTrade wasn’t far behind Plus500, in offering a Bitcoin CFD product and it shall be interesting to see whether they decide to add Litecoin to their CFD product offering.
Lessons learnt from Bitcoin
While a number of innovators have begun to offer Bitcoin CFD’s, many of the industries major players have been cautious to follow suit. This is due to the fact that brokerages face a number of technical issues if they wish to offer virtual currency products. While it is possible to go both long and short using Bitcoin CFD’s, there is currently no way to go short in Bitcoin itself which makes hedging positions difficult. Brokerages which choose to proceed without having a natural way to hedge open CFD positions have to work out how to manage the risk involved with offering a highly volatile asset class.
Firms have tended to do this by limiting leverage and by keeping spreads on Bitcoin CFD’s quite wide. In November 2013, Plus500 decided to change the trading conditions of their Bitcoin CFD product by creating a daily mandatory close with all open positions being closed at 10:00pm GMT and new positions opened in their place. This prevents traders from rolling over positions from previous days and appears to be one way in which Plus500 has sought to minimise the risk associated in offering its users a virtual currency CFD’s. The Litecoin CFD product on offer again has definite expiry date, with positions being closed at 12:00pm.
Whether there is similar demand for Litecoin trading remains to be seen, but Plus500’s decision to begin offering a Litecoin CFD product clearly demonstrates that there is an increasing interest in virtual currencies in general. It remains to be seen whether more brokerages begin to offer Bitcoin and Litecoin to their customers.