The option of leverage trading with cryptocurrencies is intended to enable platform users to react to short-term developments in the market. Austrian crypto platform Bitpanda is launching CFDs (Contract for Difference) for cryptocurrencies such as Bitcoin, Ethereum, or Solana.
“We introduced leverage as a new way for our investors: inside to trade the crypto markets on a short-term basis,” Eric Demuth, CEO of Bitpanda. “We are proud that Bitpanda Leverage is the first fully regulated crypto leverage product in Europe and that – in true Bitpanda fashion – we can now offer a complex product in a simple, regulated and smart way.”
The option of CFD trading via Bitpanda has been available to a limited number of investors since late last year but is now unlocked for all traders on the platform.
A CFD (contract for difference) on cryptocurrencies represents an agreement between the buyer and the seller. Accordingly, the latter must pay the buyer the difference between the entry and exit price of the respective cryptocurrency. CFDs are therefore used to speculate on future price movements of the separate crypto asset.
“We want to give investors the choice of how they want to invest,” Demuth said. “CFDs indeed have a much higher risk-return ratio, but they are a valuable tool for those individuals who want to profit from short-term market sentiment.”
To trade contracts for difference, one must deposit collateral (margin). A corresponding leverage effect arises because this margin is only a part of the total value. Investors: inside can then decide whether to go “long” (price rises) or “short” (price falls).
However, the price of the respective asset can also develop contrary to the investor’s expectations. Since 2017, however, private investors are no longer obliged to pay even more in the event of high losses.
The leverage products at Bitpanda are equipped with a “margin close-out control”. This means a position is automatically closed when a loss of 50 per cent of the initial margin has been incurred. This is to limit the risk of loss. Nevertheless, trading CFDs should be well considered.