Forex and CFD broker, Plus500, made headlines earlier this year when it was the first broker to launch leveraged synthetic trading of bitcoin. Similar to other CFDs on major commodities and stock indexes, Plus500 launched a contract that tracked prices of bitcoins on MtGox. When it was launched, the contract provided Forex traders the opportunity to trade bitcoin using up to 4:1 leverage. In addition, the product allowed for short trades (At the time of launch in April, it marked the first synthetic instrument providing both leverage and short trading of bitcoins. Although physical leveraged and short trading was previously available from Bitfinex).
Unlike real bitcoin trading, with CFDs the broker offering the product takes the other side of the trade. In Plus500’s case, this means they would be shorting bitcoins whenever their clients were buyers, or vice versa, which is similar to their business model among all their various CFD products. While in theory a risky business, Plus500 and other similar CFD brokers are able to mitigate risk by hedging the underlying products they provide CFDs in. Overall, for market-making brokers, the greatest risk occurs during periods of long trending markets that often leads clients to becoming one-sided in their positions, either 80%+ short or long.
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The jump in value of bitcoins from around $125 to a high of $900 on MtGox within a month, combined with wide spreads, has apparently caused difficulties for Plus500. According to traders, Plus500 has recently made changes to its trading conditions by removing leverage as well as creating a daily close. With the daily close at 10PM GMT, all positions are closed at market, with traders needing to reopen new orders every day. From a risk management point of view, the changes decrease Plus500’s vulnerability to large multi-day moves, such as we have seen in the past month. For trader’s though, the daily closes limit the ability to speculate on the long-term appreciation of bitcoin prices (Forex Magnates reached out to Plus500 for comment, but as of publishing time they have yet to answer).
In terms of other providers that continue to offer leveraged bitcoin trading, AvaTrade launched the product in August. In addition, bitcoin exchanges, BTC-e and Bitfinex both provide leverage trading through the use of internal customer lending; similar to stock shares which can be made available to short.