IG launches trading on Ethereum
IG Group, a global leader in online trading, has launched trading on ether, the token of the Ethereum network. This development enables traders to take a position on whether the value of the cryptocurrency will rise or fall, without having to take the risks associated with buying and storing it.
What are cryptocurrencies?
They are virtual currencies which operate independently of banks and governments, but can still be exchanged – or speculated on – just like any traditional currency. The most well-known is Bitcoin which IG already offers.
What is Ethereum?
Ethereum is a digital platform on which a whole range of applications can be built, including identity software, security programs and, of course, methods of payment. While the cryptocurrency itself is often referred to as ‘ethereum’, its more accurate name is ‘ether’.
How to trade it
To buy an ether token you generally need access to an exchange along with a virtual wallet. This process can be long and cumbersome, often taking several days, and carries a series of risks. You can instead trade ether with IG via a spread bet or CFD. In this case, you never actually own the currency, you are simply trading the movement in its price.
The price of ether is always quoted against another currency, most commonly the dollar. A person trading it is speculating on whether it will rise or fall in value against the other currency, rather than taking actual ownership. If they are correct they will make a profit, if not, they will make a loss.
For an example see editor’s notes.
The benefits of trading Ethereum rather than investing
- Ability to go short as well as long – can take a position in either direction, which you are not able to do when investing in the currency.
- No wallet needed – no need for specialist technology, digital wallets, and additional apps to take a position and therefore no risk of fraud or hacking.
- Security – our platform is secured by 256-bit encryption.
Dynamics affecting the value of Ethereum
Ethereum is less exposed to many of the economic and political factors which affect traditional currencies, but its value is influenced by a host of unique dynamics:
- Availability - unlike bitcoin, there is no limit on the supply of ether. Even so, many ether units will continue to be added and lost over time, causing its availability to fluctuate.
- Wider acceptance - the ethereum ecosystem is constantly changing as adoption of the cryptocurrency grows, both among independent investors and those in industry. Additional new tokens have been issued on the ethereum network in initial coin offerings (ICOs), which have surged in popularity this year.
- Government regulation - governments are still adapting to cryptocurrencies, with considerations for supervision mechanisms and other new guidelines.
- Media coverage - negative press, particularly surrounding security lapses and hacks, can impact public perception of ethereum’s value.
- Technological advance - Ethereum’s integration into payment systems, crowdfunding platforms and more could raise its profile, while confidence in traditional systems may begin to erode.
- Market manipulation - a lack of regulation means traders may be able to influence the market by buying and selling in significant quantities.
Rupert Osborne, Deputy Head of FX and Futures at IG, commented:
“As the acceptance and popularity of cryptocurrencies has grown around the world, IG has been at the forefront of giving people the opportunity to trade them. We launched Bitcoin trading for our clients three years ago and are happy to make Ethereum the second cryptocurrency to trade on the platform.”
Say our price is currently 204 to sell ether (USD), or 206 to buy it.
You believe that ether’s price will fall against the dollar, so you sell £20 per point at 204 (equivalent to £20 exposure at a price of 204 = £4080).
The ether price falls and our new price is 172/174. You decide to take your profit by buying to close at 174.
$204 - $174 = $30 move or 30 points
Your gross profit is 30 x £20 = £600.
If the market had rallied 30 points instead, your gross loss would be £600.
How does IG price cryptocurrencies?
We base the price of our bitcoin and ether contracts on the underlying market, made available to us by the exchanges and market-makers with which we trade.