Wild Spread Variations across Bitcoin Offerings Unmask Material Risks

Tradeproofer shared with Finance Magnates data that shows how difficult it is to manage cryptocurrency risk.

Bitcoin has undoubtedly been the asset of the year and trading it has proven to be a complicated task. While CFD brokers have been welcoming of the new cryptocurrency asset class, challenges associated with risk management have prompted brokers to provide minuscule leverage and high swap rates charges.

While the true cost of trading includes swap rates and spreads, our article is focusing on the second aspect thanks to the data provided by Tradeproofer. The company has been tracking data from six brokers for a week and presented the results to us in a comprehensive table.

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In the interest of maintaining the neutrality of this article, we will not be mentioning any broker names on our coverage and will instead focus on presenting the risk management challenges related to Bitcoin.

Spreads from $9 to $966

Tradeproofer tracked a week’s worth of live data from brokers in order to present comprehensive table spread costs. The six brokers tracked in the sample have been offering a minimum of 9 to 221 points spreads to their clients. One point is equal to one dollar.

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Looking at the maximum levels, the picture continues to paint a hefty challenge in managing Bitcoin risk. The maximum spreads that brokers charged their clients stretches between 60 and 966 points.

Average spreads, excluding one broker that is mainly responsible for the upper side of the outsized minimum and maximum ranges, are about $40 per bitcoin.

European trading hours appear to be the most accommodating for Bitcoin traders, while the Asian trading session can show the biggest fluctuations, at least when it comes to spreads, but the differences are minuscule. Overall trading hours are not indicative of spread conditions, though Deutsche Bank in a recent study outlined that close to 40 percent of Bitcoin trading is executed by Japanese retail traders.

With the leverage caps in Europe standing at around 1:5 and brokers finding it difficult to hedge their exposure, trading conditions in Bitcoin should continue to be volatile. While the CBOE and the CME Group are launching futures, the cash settled aspect is making the contracts undesirable for institutional investors so far.

Managing risk in cryptocurrencies remains a challenge and brokers that are not prepared to handle the process, should take the time necessary to get to know the peculiarities of the crypto market.

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