Contents
eToro, a great broker for those who are in New Zealand and want to obtain Bitcoin
Advantages:
- It is very easy to operate
- It takes strategies from experienced traders so you can copy them
- You can short sell
- You can trade leveraged
- Allows you to invest in tons of different products
Homepage: www.etoro.com/bitcoin
If you are considering purchasing Bitcoin from New Zealand, eToro is probably the best option.
“Social trading”, a relatively new way of investing by replicating techniques and moves from other experienced investors, has become trendy thanks to eToro.
If you are still a rookie or haven't gained much investment experience, eToro is great for you. You can rest assured that you are making a smart investment since the site duplicates those from subjects with a great deal of expertise. And for those skilled investors willing to share their techniques with others, eToro pays for it.
It is also very convenient how accessible is the platform, perfect for new traders who are taking their first steps in the investment world.
About Contracts for Difference
If you browsed eToro previously, you must have seen how the acronym CFD appears all the time. Before we come back to it, you should know that CFDs on eToro are only possible if you are short-selling.
FYI, and in case you are thinking about day trading cryptocurrency and other more advanced practices, you will also find concepts like leverage and “going short”.
The good thing about eToro is that it allows you to bet both “in the black” and “in red”. Let's say that you have the conviction that the Bitcoin will go down, so the logical thing is to think “if it is going to depreciate or go down, I'll simply wait until it does”. But if it actually falls, you can earn some money out of that.
You can do that by “going short”. Here's how it works ,roughly:
- You ask for a loan of, let's say, 100 units of Bitcoin, which cost $ 5,000 at the moment (obviously, these numbers are made up)
- You make $ 5,000 by selling the 100 units
- As you supposed, the price falls, and the unit of Bitcoin now costs $ 30 instead of $ 50
- Again, you purchase the 100 units, but now they are worth $ 3,000
- You return the 100 units to whoever made the loan in the first place
- You save the $ 2000 difference!
Take into account that it is much simpler than it sounds: we can summarize this whole operation by saying that by trading in Bitcoin you can also make money if you foretell the downs.
How are CFDs and futures different?
What are the main differences between Futures and CFDs?
- Counterparties
- Futures: the counterparty is another trader.
- CFDs: the counterparty is the broker, in this case, eToro.
- Expiry:
- Futures: they have an expiry date. When that date arrives, your position is ended even if you are in losses.
- CFDs: on the contrary, they don't expire. You can wait for your position to rise before exiting.
- Trading markets available:
- Futures: there are fewer options for investment
- CFDs: there is an enormous amount of options for trading
- Minimum deposit amount or “trade size”:
- Futures: very high minimum investment
- CFDs: you can start with a small deposit
- Cost of trading and rates:
- Futures: being higher figures, the costs are usually proportionally lower
- CFDs: higher (although they are not excessively high either)
- Use of leverage:
- Futures: it isn't possible to trade with leverage
- CFDs: it is always possible to leverage
In case you still don't know what “leverage” is, we'll describe it briefly. When trading, it's the capacity of increasing your investment by borrowing money from the broker. For example, you can enter with $ 100, but if you leverage x2, your initial investment will be $ 200.
About leverage, Take Profit and Stop Loss
Suppose now that you are sure that the price of Bitcoin is about to raise its price, and you choose to “go long”.
You are completely sure that Bitcoin will rise, and you have $ 1,000 at that moment, but the fact is, you have the chance of investing more.
There's the possibility of requesting a credit, but you must know that all the process takes time, and when you receive the money, Bitcoin might be already so expensive that trading wouldn't be convenient anymore.
With leverage, you can get that amount really easily. It's exactly like a loan, but much easier and quicker, and with the benefit that you will be getting it directly from eToro. Before trading, you will how much leverage to use as in the screenshot below:
Trading with other assets allows you to use more leverage. Why? Because leverage is regularly for short-term operations, and cryptocurrencies tend to be a medium or long-term investment. That said, I'm going to explain better how leverage works:
- If you want to invest $ 1,000 and you use leverage x2, you will be starting with $ 2,000 ($ 1,000 was “borrowed” from eToro).
- Then, turns out that Bitcoin does increases, as you thought, and now the cost of your investment is $ 2,400 (20% higher), so you decide to sell back.
- The $ 1k of leverage will be deducted, and you will have $ 1,400 left; which means the net profit is $ 400, since the other $1,000 was yours from the beginning.
In conclusion, by investing $ 1000 and obtaining $ 400, your net profit would be 40%. That is quite good.
But watch out: if all goes as you intended and the price rises, you will make profits. Nevertheless, if the price falls, you will also lose more money in the blink of an eye.
For example: if instead of increasing by 20%, the price falls by 10%, you won't lose $ 10, but $ 20. That is why to operate with leverage it is essential to know two other concepts: Take Profit and Stop Loss.
Take Profit is used as a form of reducing risks when trading. When you enter, you can set a profit limit and ask that your position is automatically closed when the asset reaches a price.
If you bought Bitcoin at $ 100, you request eToro to close your operation when it reaches $ 120. That way, you make sure you won't change your mind and decide to wait a bit longer in case it keeps going up, which could make you lose it all.
Also, if you use leverage you absolutely need to place a Stop Loss order (take into account that any small loss is greater with leverage). You always need to mark a Stop Loss lower than that suggested by the platform.
About ETFs
Have you heard about Exchange-traded funds? They are similar to index funds and are known for merging the advantages of stocks and mutual funds: they can be traded at any moment in the market, but include a much wider diversity of assets and the fees are significantly lower.
Foreign exchange
What is known as Forex trading consists in the trading of currencies. It is the conversion between currencies, and the aim is, evidently, to make a profit out of this.
For example, if you decide to exchange euros and dollars, you speculate how many dollars it will take to buy a euro, hoping that the euro will rise compared to the dollar. Therefore, if you bought each euro for 1.15 USD and you sell them back when their price is 1.20 USD, that margin will be yours.
You may be thinking that this form of trading requires investing considerable amounts, and you're right, since increases in prices are never that dramatic, and if you use a lot of leverage to counter that, you will take a considerable risk. Our advice for those who are new in the world of trading is not to start with Forex, but with a safer and more secure market.
Most currencies are available on eToro. Nevertheless, remember that in Forex trading sales are always made through CFDs, therefore the underlying asset won't be yours.
Equities
Stocks or equities are the most common securities. Some corporations decide to split into fractions and have many shareholders. By investing money in them, you can own a fraction of a company and obtain returns.
We can categorize stocks into two main types: those that pay dividends and those that do not. Those that pay, at the end of the fiscal year, distribute their profits among the stockholders; the latter, on the contrary, do not. However, that doesn't mean that the latter have less to offer. If a company does not pay every year but has a lot of potential, you should not give it up just because it does not pay you every year, since selling the shares in the future could pay much more.
If you invest in equities that payout, you will receive the funds into your eToro account, and you can withdraw them or invest back. Nevertheless, compound interest can do magic, so our suggestion is that you reinvest in the company if you don't need the money immediately.
Take into account that when investing in shares on eToro you can use leverage to “dope” your trades, but in that case, you will not receive interest as it would be a contract for difference. For that reason, for long-term investments, it is better not to use leverage: not only because you lose dividends, but also because you will have to pay commissions during the days that you keep the position open, and these can end up eating your gains.
Index Funds
If a long-term investment sounds like a good idea to you, and you won't need to withdraw your money in at least five years, index funds can be the best choice. This kind of investment is also suitable for beginners since it is safer. Besides, they offer more variety.
You may think differently, but benchmark returns are very difficult to beat and very few fund managers have done it, apart from some specific cases, like Warren Buffett's.
In practice, all that glitters is not gold: if a fund manager achieves to beat the market, it is only for a short time or on a specific occasion. Or perhaps they would charge very high rates and indexing would be a better decision anyway (with minimal commissions).
Index funds offer solutions to both concerns: their rates are insignificant and in the long term they almost always beat active managers.
Payment methods on eToro
Among the payment options that you will find on eToro are: bank transfer, PayPal, credit card (Visa, MasterCard, Diners, Visa Electron and Maestro), Neteller, and Skrill. There is not much to say here: making a deposit with eToro is a very easy process. You just need to go to “Deposit funds”, choose an amount and the payment method you prefer.
(Keep in mind that you should be the account or credit card owner, for security policies).
The lowest amount you can deposit is $ 200, and there is a maximum allowed if you are not verified. Therefore, in case you want to trade with higher amounts, you should verify your account previously.
The platform accepts transfers in any currency, but charges a commission for making the conversion to USD. So it is better to use USD from the beginning.
Is eToro trustworthy for purchasing Bitcoin?
eToro is very careful with the data about past performances from traders, and its reliability has been independently tested several times.
eToro follows all the demanding policies requested by the European Union, legislation in which it is found. Specifically, its head office is in Cyprus, where it is certified by the Cyprus Securities Market Commission (known as CySEC), which protects up to € 20,000 of the debts that its clients may have with creditors (those from New Zealand included).
eToro responds to the European Financial Instruments Market or MiFID, and to the Financial Conduct Authority (FCA) in the United States of America. You should also know that it has a trajectory of fifteen years, with more than 20 million users around the globe. So, yes, it is a safe broker.
Their excellent customer service is also worth mentioning. You can use the ticketing system, an online chat, and they also have a phone number available for assistance.
Practice account: How does it work?
If you do not have much experience investing, you can start by practicing with a “demo” option. Setting a virtual account and trading with fictional money is very easy.
A virtual account can help you to practice and gain experience before starting to operate with real money. When you create your demo account, you will begin with a virtual amount of $ 100.000, to trade with a variety of financial instruments available on eToro (not just with Bitcoin).
Don't worry, since if you lose all your virtual balance, you can contact support so they can add back the $ 100k to your portfolio and you can make a second attempt.
However, remember that you need to be prudent for trading, and demo account trading can have an adverse effect. It is completely different to risk your own money than to do operations with a false balance that you don't mind losing. Besides, using fake money can prevent you from learning to control your emotions, as a true investor should.
And of course, the demo mode is kind of pointless if you want to invest in the medium or long-term, since you would be wasting years to see the results. Demo accounts may be helpful for trying out short or medium-term operations.
eToro Interface
We said previously that eToro is very easy to manage. Anyone can start investing without previous knowledge or long explanations.
You won't have any problems with the interface if you are familiar with any other social network.
We will explain the registration steps and the different tabs that you will see on eToro.
First, you will have to enter your personal data.
Additionally, you will have to answer some questions about your experience at investing.
But don't feel like you are taking an exam. They only intend to find out about your previous experience and knowledge to determine which instruments to recommend for you.
You will see a bar that says “incomplete profile” until you fill in all the information.
Let's see what the different sections of the page are.
In “Set Price Alerts” you can set alerts on the price of certain securities. This is very useful when you are after a security which price is decreasing, but it seems to you that it has not finished falling yet.
The section “News Feed” allows users to interact and share their experiences and knowledge.
“Instruments”, “People” and “CopyPortfolios” are within “Discover”. As we mentioned previously, the six types of instruments on eToro are:
- Cryptocurrencies
- ETFs
- Stocks
- Commodities
- Currencies
- Index funds
In “People” are all the profiles and historical performances of other users, and you can replicate their movements with just one click. This is where the “social trading” concept is best applied.
In this section, you can search and find users according to your interests. When you choose an investor and indicate the amount you want to invest, eToro will automatically replicate their movements, proportionally. For example, if you invest $ 1000 and the user puts 20% of their funds in an asset, the platform will put $ 200 of your funds in the same asset or company as well.
Lastly, you will also find the CopyPortfolios divided into three main categories: “Top Trader”, “Market” and “Partner”.
Sometimes you might prefer copying to CopyPortfolios than to individuals, because the former offer more diversity. There are all kinds of portfolios that you can recognize easily and are classified by sectors. Thus, in case you suspect a specific sector, such as gaming or pharmacy, will have good incomes in the future, you should look for that specific portfolio.