I get asked this question a lot!
The top company for CFDs is Etoro and for owning the coin outright it is Coinbase. (Ripple is available on Etoro however you cannot buy Ripple on Coinbase, this is another question I get asked often. To own Ripple outright is much more complicated and more expensive see the bottom of the article to learn more).
Lets have a look at different aspects of each company and what they offer:
Product – What are you buying?
With Etoro you purchase a CFD which stands for “contract for difference”. A contract for difference is basically a contract between yourself and the broker that they will pay you the difference between your open position and close position of the financial item you are buying.
With Coinbase you own the coin outright. At the time of writing you can buy Bitcoin, Ethereum, Litecoin and Bitcoin Cash.
What does owning the coin actually mean? Well if you want to make money with Bitcoin or Ethereum or any of the Cryptos on Etoro or Coinbase – nothing. You are taking a chance on whether the currency will rise or fall regardless of platform. Owning the coin only comes into play when you want to buy Cryptocurrencies not listed on either platform as they generally only allow you to purchase with Bitcoin or Ethereum. This method is more complicated than just buying other Cryptocurrencies from Coinbase as they do not use ERC-20 technology, you can read more in this post.
Fees – How do they make money?
Make no mistake each company is here to make money whether you own the coin or not.
Etoro makes money on the “spread”. The spread is the difference between the buy and sell prices quoted in any market. For example if CrytpoA was trading at $100 Etoro would have the position available at $99-$101. Meaning you buy for $101 and sell for $99, so Etoro keeps the $1 difference. There is no fee for depositing however there is a $25 fee for all withdrawals. They do not charge commissions on purchases or sales. Their fees are solely made on the spread.
Coinbase also charges a spread but do not clearly point this out, this spread is getting increasingly higher. You also get charged 3.99% for a deposit using a debit card, credit card or Paypal AND 1.49% every time you make a purchase of a Cryptocurrency. In Europe, you can negate the 3.99% fee by using a SEPA bank transfer. This is basically an international bank transfer by a SEPA enabled bank. You can read more on the Coinbase website here, note there is no mention of spread on this but you will be buying at higher than the quoted price on CoinMarketCap as well as paying commission on purchases and sales.
Functionality – What can you do on their online software?
There are hundreds of financial items to trade on Etoro from stocks and commodities to actual currencies, at the moment the Cryptocurrencies they have available to trade are: Bitcoin, Bitcoin Cash, Dash, Ethereum, Ethereum Classic, Litecoin and Ripple. Because Etoro uses CFDs it gives them greater flexibility to create add more tools and features. I could write a full article on the features alone but i’m just going to mention the features I use daily to help me trade.
- Stop Loss/Take Profit – If you have ever traded before you know that you never enter a trade without these set. Say for example you buy 1000 Ripple at $2, you obviously want this price to rise, and you don’t have the time to sit and watch the price all day. What you can do with Etoro is set a stop loss at $1.80. If the price drops down to this amount then the system will automatically sell 1000 at $1.80 meaning you know your max loss is $200. You could also set a take profit off $2.50 which will automatically sell at this price netting you $500. I could not trade without these features as I cannot be at my computer 24/7 I know exactly what I could lose.
- The ability to “Sell” – I do not mean sell what you have already bought here, I mean you can sell without buying. Basically means you want the currency to go down to make money. So if you feel like a Crypto will crash then sell it instead. I have used this a couple of times with success.
- Social Platform – Etoro is not just a platform for buying and selling. If you have used any social platform like Facebook in the past people have their own feeds. Each product also has there own feed that shows people who have mentioned it from theirs. At the time of writing in the last minute the Ripple (XRP) feed has had 10 mentions from other traders with their predictions and analysis. If you are new to trading Crypto this is a must as you can get a feel of what other traders are doing.
- Copy Trading – For those of you who read often you will know most of my money is invested in other trades who I have done my due diligence on. Some traders are making 25% a month. If do not think you are up to investing yourself you can click “Copy” on another traders profile and the Etoro will automatically copy their trades. This is great if you have not got the time to always check your computer. Each profile is complete with all the information you need to copy just choose someone who is predominantly trading Cryptocurrencies and making a steady return each month.
You can buy Bitcoin, Ethereum, Litecoin and Bitcoin Cash and see the charts for each. Selling is left to you. There is the option to repeat sell if you wish. Which basically allows you to sell X amount of a Crypto Currency daily, weekly, bi-monthly or monthly.
Risk – What is my course of action if something goes wrong?
Both companies are profitable being estimated at $1bn+ so the chances of them going bust are very low.
In most countries CFDs have to be regulated. This for me was one of the most important factors when choosing a company to purchase CFDs, they would need to be regulated in the UK. Etoro are regulated in the UK by the FCA under the number 7973792. You can look them up on the FCA register. What this means is if you have a dispute regarding your money you can take it directly to the FCA who will help mitigate this matter. If Etoro does not comply with the FCA they can stop them operating in UK. Essentially shutting their UK branch down. They are regulated in Europe. You can read more here.
Since Cryptocurrencies are unregulated at the time of writing you are at the mercy of Coinbase to solve any problems you may have.
I wrote this article because I have a lot of emails from people being adamant they want to own a coin. For me I don’t get it. If you just want to buy say Ripple then do so on Etoro. To buy Ripple elsewhere you would need to buy Ethereum or Bitcoin on Coinbase, pay Coinbases fees, then send your Bitcoin to an exchange that also has its own fees and then exchange your Bitcoin or Ethereum for Ripple which also has it’s own spread (more fees). Then if you are successful and want to turn back to cash do this in reverse to get your money out paying spreads and fees along the way.
I hope this helps! If you have any questions please feel free to comment below. You can sign up for a practise account woth $100k dummy funds on Etoro here or you can join coinbase here.
Thanks for reading!
One thought on “Why Use CFDs? I Want to Own The Cryptocoin!”
I have a real issue with eToro’s calculations. I had my first venture using eToro recently, bought some ripple in early Jan (at an overhyped price but that’s a different story) but the numbers don’t add up. I bought $750 at a unit price of $2.3466 (not sitting pretty right now!!) so that should be 319.61 units.
But it gave me 341.03 units which equates to either an $800.26 investment at a unit price of $2.3466, or it equates to a unit price of $2.1979 for a $750 investment.
I emailed their support about this and the first reply told me that the unit price is locked in at 22:00 GMT from the previous night and stays fixed for 24 hours. So although the actual buy price was $2.3466 at 11.39 on the day I opened my position, the unit price they gave me was based on 10pm the night before.
To me that would make the system unusable. How can you buy and sell when the currently published buy/sell prices are NOT the prices you’re going to actually get?!
So I replied with my concerns and I got a second reply stating that the 10pm rule was completely wrong and misleading but what they actually do when you open a position is give you the SELL price, not the BUY price, and the sell price when I opened my position was about $2.19.
But that still doesn’t make any sense. What’s the point of a margin spread if you can buy at the sell price? How would they make any profit? And what price do they give you when you sell?
A snapshot of my account shows:
$2.3466 unit price
341.033103 units (which doesn’t make mathematical sense)
$1.0571 current unit price
so my holding is currently worth $360.51
with a current loss of $439.76
which assumes the initial investment of $800.27
$50 more than I invested!!
So the numbers are all messed up which leaves me completely confused as to what is going on and with absolutely no confidence to use eToro in future.
I’ve sent this information back to them and still awaiting their reply, but I would like to know if your numbers added up correctly and made perfect sense, because mine clearly don’t!
And what do you know about how eToro operates regarding unit prices when you buy and sell.