Trading Indices with Bitcoin

Trading indices is a good way to gain exposure to certain markets and sectors without the cost of acquiring multiple shares and products. Indices follow the general price movement of the underlying basket and can often overperform individual stock-picking decisions. Combining this with bitcoin funding resulting in a very cost-efficient way to invest in the markets.

To trade indices with bitcoin you need to follow the following steps:

1. Buy bitcoin on an exchange
2. Send bitcoin to your brokerage account as a deposit
3. Buy and sell indices using bitcoin

 

Review Contents

1. What is Index Trading?
2. What are the pros and cons of trading indices with bitcoin?
3. The advantages of trading indices with bitcoin
4. The disadvantages of trading indices
5. And what does high volatility mean?
6. Different types of indices you can trade with bitcoin
7. Stock market indices
8. Commodities indices
9. Conclusion
10. Best Brokers to Trade Indices with Bitcoin
11. FTX (shitcoin index)
12. PrimeXBT (index trading with bitcoin deposits using a credit card)
13. Evolve Markets (high leverage index trading)
14. Deribit (BTC and ETH options, futures contracts)

 

What is Index Trading?

An index is a basket of individual instruments from a certain asset class. Indices follow the price movements of the underlying product and provides a good general exposure to certain market segments at a low fee.

The price and the volatility of an index are impacted by the same factors as the underlying instrument. Geopolitical events, supply and demand shocks, general economic data all affecting the price movements of indices so you can trade it like a single asset for trading.

Thus, an index gives you a very good way to see the performance of a submarket, a sector, or industry.

Indices are often traded in the form of CFDs. The contract for differences, or in short CFDs are a financial instrument that follows the price movement of an asset without actually providing ownership to it. You can buy and sell CFDs that are issued and managed by brokers that gives you easy access to multiple markets at the same time from a single brokerage platform.

What are the Pros and Cons of Trading Indices with Bitcoin?

Nowadays more and more brokers offer the option to fund your account with bitcoin and cryptocurrencies. These digital coins provide low fee international money transfer options a well as privacy over your finances. But it also comes at the cost of potential losses.

The Advantages of Trading Indices with Bitcoin

First and foremost, trading indices with bitcoin helps you to control the privacy around your finances. Bitcoin provides anonymity over your account, you do not need to share your personal information online be it your identification or your trading profits.

Since indices are representing a basket of products, their prices are not subject to any price manipulation. While an individual stock’s price can be manipulated through (fake) news and data cosmetics, it is not possible to do with a complete sector.

Trading an index instead of a standalone stock also helps you to manage the risk of your portfolio. You are no longer dependent on a single company’s financial success or bankruptcy. Even if one company fails in the index, the total value of the index can still increase.

The Disadvantages of Trading Indices

The biggest disadvantage of trading indices as an asset class and also through bitcoin is the potential lower profit. Although this is depending on market dynamics, the potential profit loss is existing on two sides.

With an index, you gain exposure to an entire sector or industry. Although it can be good if one of the companies fail and its price decline, it also means that if a company skyrockets, you will not benefit as much from the price rise.

Take Apple (AAPL) and the Dow Jones Industrial Average (DJIA) as an example. Dow Jones is a benchmark index tracking the 30 largest publicly-owned US companies traded on the New York Stock Exchange and NASDAQ. The price of the index is derived from the price-weighted value of the underlying 30 companies, including Apple Inc.

On the above chart you can see if you have invested solely in Apple 4 years ago, your return would have been 294% (orange) while with the Dow Jones Industrial Average Index you only reached a return of 57% (blue). Of course, if you study closer to this chart, you may see that the price fluctuations of APPL are much wider than the index, so your potential loss can be higher as well when holding a single stock compared to an index.

Generally speaking, the volatility of an individual stock is always higher compared to a basket of products represented by the index as the price fluctuations are netting and smoothed out among multiple companies.

On the other side, if you are trading indices with bitcoin you also have to account for the price fluctuation of bitcoin against fiat currencies, like USD or EUR. This adds another variable to the equation. Bitcoin’s price itself can be fluctuating even more than an individual stock. The below graph shows the same time horizon with the addition of BTCUSD prices in green. You can see it clearly from this chart, that Apple’s and DJIA’s price volatility is significantly lower compared to bitcoin.

And what does high Volatility mean?

A higher volatility means you can either make more money or loss much more on this market, compared to sticking to the ordinary index trading.

Different Types of Indices you can trade with Bitcoin

So far we have been talking about indices in general. But since indices representing a basket of assets it also means there are a lot of different types of indices that exists based on the underlying assets.

Stock Market Indices

Stock market indices are following the price of the underlying stocks in the basket. This basket can be constructed in a lot of different ways. The most common weight used in a stock market index are price weighting and volume weighting. Indices can be constructed based on regions and industry sectors.

For example, the Dow Jones Industrial Average represents the 30 biggest companies listed on Wall Street (NYSE and NASDAQ). But there are a couple of similar indices in other countries, like the FTSE 100 in the United Kingdom, the DAX in Germany, or the Nikkei in Japan. In terms of industry, the NASDAQ 100 index represents the biggest 100 US tech companies based on their market capitalization.

Commodities Indices

Just like in the case of stocks there are a lot of different commodities indices as well on the market. You can invest in the commodities segment as a whole or just separately in sectors like metal, oil. The choice of the index is really depending on your trading strategy how broad would you like to cover a specific submarket.

For example, the most common commodities indices are the Brent and WTI oil. These oil contracts follow the prices of the futures contracts of oil on different exchanges from the specific regions.

In reality, there are thousands of indexes that exist on the markets depending on how they are constructed and what assets they cover. Government Bond indices are often used for benchmarking risk-free returns.

Even cryptocurrency indices exist, which can represent the entire crypto market in a single price. In terms of the cryptocurrency market, since there is no central regulation in place, using a crypto index to invest and trade coins ensure that the underlying prices are not manipulated by a single market participant.

Conclusion

Index trading with bitcoin can help you to leverage the privacy feature of bitcoin while benefiting from the cost efficiency of having exposure to multiple products and sectors.  Nowadays a lot of platform offers index trading with bitcoin with a lot of different product. Be it traditional stock indices, commodities or various cryptocurrencies, you can deposit on these platforms using bitcoin and invest in basket of products in an easy and quick way.

 

Best Brokers to Trade Indices with Bitcoin

FTX (shitcoin index)

 

FTX is a cryptocurrency derivatives trading market where you can reach up to 101x leverage. With their unique leverage tokens, you can benefit from market movement and price volatility without the need to construct complex portfolios or picking the direction of the future market.

The company has been founded by an ex-hedge fund and ex-Google employees and currently is operating from Hong Kong with offices worldwide. FTX is currently not serving US customers due to strict financial regulation in the country affecting derivative exchanges.

Beyond offering the options for many altcoin and bitcoin itself, one particularly interesting index on FTX is the so-called shitcoin index (yeah – this is the official name of the product!). The SHIT-PERP contracts lets traders gain exposure to a basket of altcoins with low market capitalization that are weighted based on their prices. You can get exposure to 50 different low-cap altcoins which would otherwise have low liquidity but higher earning potential with a single index product.

The fees on FTX.com cost 0.02-0.07% depending on if you are a market maker or market taker on the platform with an additional 0.1% fee on leveraged trades and 0.03% on daily management. Beyond the regular order types, like market and limit order, you can finetune your trading strategy with Reduct Only, POST, and IOC orders.

 

 

PrimeXBT (Index trading with Bitcoin Deposits using a Credit Card)

 

PrimeXBT offers CFD trading option with cryptocurrency deposits at low fees. No KYC is required on the platform. The company has been incorporated in 2018 in Seychelles and offering services worldwide except for the residents of the United States due to local regulations.

You can trade with 7 different stock indices, including SP500, Nasdaq, but you can also get exposure to the Japanese, Hong Kong, and European markets. Beyond stock indices, PrimeXBT also offers Brent, Crude, and Nat.Gas CFDs to benefit from the price movement from the commodities market. You can deposit directly BTC to your unique PrimeXBT deposit address or alternatively you can use a credit card to purchase cryptocurrency using a third-party service built into the platform.

PrimeXBT uses a flat trading fee of 0.01% for trading indices with a variable funding rate for marking trades between 0.02-0.04%. You can trade up to 100x leverage with index products on PrimeXBT with market and limit orders to tailor your trading strategy to the most profitable outcome.

 

Evolve Markets (high leverage index trading)

 

Evolve Markets is a cryptocurrency trading platform, where you can deposit bitcoin and litecoin without going through any verification process. The company was founded in 2016 on Saint Vincent and Grenadines and provides services worldwide.

You can trade 10 different indices on Evolve Markets up to 500x leverage. They offer CFD Indices to cover most of the markets around the globe. Trade on markets of Australia, Europe, Asia, and the USD with bitcoin deposits. Evolve Markets offers CFDs for SPX500 and Nasdaq 100 as well.

The spreads are tight, ranging from 10-20 pips on liquid indices, 70-80 pips on less liquid markets. In addition to spreads, you also need to consider their trading fees which are 0.0035% for index products. There is no deposit or withdrawal fee however on Evolve Markets.

Trade on the lightweight and super fast webtrader or directly on Metatrader 5 with a regular market order or pending orders which are equivalent to limit orders that are executed if a certain price level is reached.

 

Deribit (BTC and ETH Options, Futures Contracts)

 

Deribit is a cryptocurrency trading platform specialized in crypto derivative products, such as options and futures contracts.

You can bet on BTC and ETH future price movements using these assets. The underlying price used in the calculation of the BTC and ETH derivatives is the Deribit BTC index, that is using 8 exchange’s average bid/ask spreads with equal weights from Bitfinex, Bitstamp, Bittrex, Coinbase Pro, Gemini, ItBit, Kraken and LMAX providing a truly complete look on the crypto markets.

Deribit has been founded in 2016 after several years of development and by now it became the goto place for traders for derivative crypto products. The company is currently incorporated in Panama. The trading platform is using a maker-take fee model, which futures trading fees are -0.025%-0.075% and option fees of 0.04%. There are no deposit or withdrawal fees on Deribit.

Since the platform is a crypto-only platform, there only a simplified KYC for opening an account, but in this case, the withdrawals are limited to 1 BTC per day. Deribit is not a CFD trading platform, you trade directly cryptocurrency, thus they also charge a 0.025% settlement fee for delivery. You can trade up to 10x leverage on Deribit with market and limit orders.