Mariela is a former investment banking analyst and has been a cryptocurrency writer with LeapRate and Asktraders for the past two years
With Bitcoin posting all-time highs, the market is once again full of people looking to buy into the rally. The interesting thing about Bitcoin is that it’s a relatively new product. One result of this is that there are a lot of different ways to buy Bitcoin. This article will pick out some factors to consider when finding the best way to buy Bitcoin.
Any financial transaction is associated with risk. If you are buying Bitcoin, then there is the risk that it will subsequently go down in price. This is ‘market risk’. Another risk related to protecting your assets, is ‘counterparty risk’, and managing this risk is crucial.
A surprise price move against you is part of the deal. Trading cryptos is a high risk-return operation. Losing all your money to a scam is another thing.
The crypto sector has unfortunately picked up a reputation as being full of scammers. Those who have found their account cleared out by unscrupulous agents will know a particularly deep pain.
Flipping it around, means that those looking to buy Bitcoin might be more willing to consider some straightforward ways of protecting themselves.
There are three main routes to buying Bitcoin. These are best broken down as exchanges and intermediaries and online CFD brokers. If you are looking to use a regulated agent, brokers' last option is the best place to start.
Not all brokers are regulated. Not all regulated brokers are licensed by the same authority. However, with a little research, you can find a broker with a fully functioning platform and competitive pricing regulated by a Tier-1 authority.
If you are looking to buy Bitcoin, are UK-based, and are new to trading, then it’s worth looking for a CFD broker that is regulated by the Financial Conduct Authority (FCA).
The regulatory cover is a function of the instruments you trade and your domicile. It’s not determined by the markets, so if you are trading oil, equities or cryptocurrencies using an FCA-regulated broker, and are a UK citizen, then you will come under the protection of the FCA.
Some brokers throw in additional safety measures and, you do need to read the T&Cs, but the cover available from FCA-regulated brokers might include:
Other Tier-1 regulators offer similar protection. The exact details depend on which regulator’s umbrella you come under, but good rubber stamps to look for include those of the Australian Securities and Investments Commission (ASIC) and the Cyprus Securities and Exchange Commission (CySEC).
Exchanges set up to trade crypto are now well-established. Coinbase has a strong position in the trading community and has been in operation since 2012. Other exchanges also cater to those who prefer to use them and see them as capturing the anti-establishment spirit of trading Bitcoin.
The decentralised protocols and revolutionary approach of Bitcoin exchanges are also backed up by a degree of anonymity. Blockchain technology's paradox is that enough account information is shared to ensure that the system works, but identities are protected.
While exchanges may not be regulated as such, they do have strong reputations. It’s a grey area, but if anonymity appeals, then using an exchange might be for you.
If you’re looking to buy Bitcoin, you have to set up some kind of account to facilitate the exchange of your funds for the crypto. This will then become the place you hold your Bitcoin position.
The split between exchanges and brokers continues through into the question of the way that they trade crypto.
Both exchanges and CFD brokers will require you to register with them. If you’re going to be holding an asset with them, they do, after all, need to be able to verify your identity.
Being regulated means that CFD brokers are required to ask for more information. Uploading a piece of photo ID is a standard procedure.
You will probably be required to complete a questionnaire so that the broker can fit you into a client profile. This KYC (Know Your Customer) information is part of its regulatory duty. It will come down to your personal preference regarding whether you find this reassuring or an inconvenience.
Exchanges act as an intermediary that holds both seller’s and buyer’s funds and processes a transaction once all terms are met. Any reputable exchange will require you to complete onboarding with it, but it is typically a more streamlined process than a CFD broker.
The functionality of both CFD brokers and exchanges can be state of the art. Of course, there are some that won’t be entirely up to standard, but in general, the competition between the firms means that they have all developed exceptionally user-friendly platforms.
If you’re looking to trade more actively, you might want to use a review such as this one to find the best fit for you personally.
Most CFD brokers offer free demo accounts where you can practice trading using virtual funds. This is a risk-free way to understand better how to buy Bitcoin and the pros and cons of different brokers.
If you’re looking for the best way to buy Bitcoin in the UK, then safety and ease are factors to consider – but profits are what it’s all about, so costs also have to be considered.
Before you step into the market, do consider your investment aims. Everything else being equal, you might look to use CFD brokers for short-term trading and exchanges for longer-term investments.
Most brokers willingly share details of their costs. If they don’t, then it’s possibly a sign to steer clear of them as they may be trying to hide charges from you.
A breakdown of the fees to keep in mind is laid out below. Establishing what you are likely to pay in charges protects your capital and helps you develop trading strategy ideas.
When trying to find the best broker, you need to factor in the costs associated with the different platforms. No one likes to see unnecessary charges eat into their profits.
It is, however, important to not be ‘penny wise and pound foolish’. Costs are part of the deal, and it’s a case of finding the best way to buy Bitcoin without overpaying for the privilege.
The huge range of brokers and exchanges on offer can at first appear daunting. Using a little common sense and approaching the subject with safety as a priority is a great way to start.
It’s then time to embrace the process of shortlisting and finally selecting the approach that you want to take. This is all part of the learning process.
Exchanges and CFD brokers offer a slightly different approach – either one might for you be the best way to buy Bitcoin.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage . 75 % of retail investor accounts lose money when trading CFDs with this provider . You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money .