When you think of trading, items such as gold, silver and stocks and shares may come to mind. However, in recent years some spread betting companies have widened their scope to deal in other items, the virtual currency Bitcoin being an example.
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Last year saw perhaps the peak in the demand for Bitcoins with the price of a single coin rising to a high of $266 in one day only for that to soon fall back to $54. The popularity of the currency took some by surprise but the fact they were unique added to their appeal.
There is no central authority or banks dealing with Bitcoin, it operates purely through peer to peer technology, so it is a public currency owned collectively by the network and open to everyone.
One way of trading in Bitcoins without actually physically owning the commodity is through a Contract for Difference (CFD) which sees an agreement between the seller and the buyer to pay the difference as the price of the commodity rises or falls. So the trader has the benefits of trading in Bitcoins without having actual possession of the coins.
Benefits of Bitcoins
As a system it has several advantages along with some drawbacks. In the plus column it has a low inflation risk unlike many other worldwide currencies. This is because there are only a certain number of Bitcoins in use. Only around 21 million will be mined, so it is a finite resource.
It is also not at the mercy of governments. The financial crisis seen a few years ago, threatened to bring down banks and destroy savings. Because Bitcoin is a virtual global currency it is unlikely to be affected by the normal worldwide financial situation.
It is also generally simpler and cheaper because transactions take place between the individuals themselves rather than through intermediaries such as banks.
There are risks involved with Bitcoins however. With normal financial dealings, such as credit cards and bank accounts, you have security in place to fall back on should crime occur or if you simply lose a card. With Bitcoins, if you lose the currency then it is gone and there is generally no way you can get it back.
It can attract crime just as other means of payment and, whereas if someone hacks into your computer and gets your bank details, there is a good chance you will recover any money lost; with Bitcoin, if someone hacks into your wallet, you will probably never see the “money” again.
It has other drawbacks too; notably it is still relatively new and there are many places which have not caught onto it and will not accept it as a form of payment. It is also quite volatile as the experience last year, of prices of a single coin going up to $266 then quickly down to $54 testifies.
However, though still in relative infancy, Bitcoin looks like it is here to stay and looks to be a trading commodity for the foreseeable future. It is already the subject of spread betting and there may, in the future, be bonds and regulations. It is just one of a growing number of unusual trades which are growing in popularity.
Though traders still overwhelmingly deal in the more established markets such as the pound, the Euro, the dollar and the FTSE, others exemplified by Bitcoin, are finding their way into markets and look to establish themselves as viable trading commodities.