With Bitcoin and other coins in the cryptocurrency market still making headlines on a near-daily basis, investors want to know: Can they get in on the digital currency craze, too?
The answer depends on whether you want to actively trade Bitcoin futures or an investment trust — and if you qualify to do so. Because Bitcoin trading is still in its infancy relative to say, government-backed dollars or gold, it can be highly risky.
Still, millennial- and smartphone-friendly app Robinhood on Thursday announced it would allow customers in five states to trade cryptocurrencies for no commission fee, starting in February. It's now letting clients monitor market data and create custom alerts for 16 cryptocurrencies.
Three of the five companies featured in this year's Best Online Brokers report allow Bitcoin futures trading for a select group of clients. The other two let users see Bitcoin quotes and/or offer digital currency tracking services. All five are keeping a close eye on developments in the cryptocurrency market.
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And keep in mind — even if your broker doesn't allow cryptocurrency trading or you don't meet their requirements to do so, you can still get exposure indirectly via Bitcoin or blockchain-related stocks and mutual funds or exchange traded funds holding those or Bitcoin Investment Trust (GBTC).
Let's start with Fidelity Investments. The Boston-based fund giant does not currently offer Bitcoin trading. But it's been actively monitoring and showing interest in the digital currency field. "I love this stuff — Bitcoin, Ethereum, blockchain technology — and what the future holds," CEO Abigail Johnson told attendees at the Consensus 2017 conference in May.
And in August, the Boston-based fund giant announced a partnership between its Fidelity Labs unit and digital wallet provider Coinbase that allows Fidelity clients to track their cryptocurrency balances in their accounts. While Bitcoin and the cryptocurrency market are on Fidelity's radar, according to brokerage services head Ram Subramanian, its view for the time being is that cryptocurrency trades are "not an appropriate dealer offering."
Likewise, Charles Schwab is taking a wait-and-see approach and does not currently offer Bitcoin futures trading for its clients. But it began displaying real-time Bitcoin futures quotes on its StreetSmart Central and StreetSmart Mobile platforms in December.
"On cryptocurrencies, we're actively evaluating and weighing the risks to ensure client interests are protected before we make cryptocurrencies available," Schwab spokesman Michael Cianfrocca told IBD. "Most of the client questions we're getting are more educational in nature — what they are and how they work vs. asking for the ability to invest in or trade at this point."
Given the still untested and volatile nature of cryptocurrencies, most online brokers that allow Bitcoin futures trading impose higher margin requirements than the exchanges. They also tend to limit access to more sophisticated traders with amply funded accounts to cover potentially high risk.
TradeStation allows its futures account holders to trade Bitcoin futures on both Cboe Global Markets (CBOE) and CME Group (CME).
"We believe that CME's launch of the new Bitcoin futures contract represents a major milestone in the development of cryptocurrency derivatives markets that appear to be more fair and transparent than trading the underlying cryptocurrency," John Bartleman, president of TradeStation Group, said in a statement. "We're excited to support CME's new offering from the first day of trading and to extend to TradeStation clients the opportunity to trade this emerging market."
TD Ameritrade is testing the waters. It offers access to CBOE Bitcoin futures (XBT) via the broker's thinkorswim platform and TD Ameritrade Mobile Trader app, but it's not available to all clients. You must be approved to trade futures in your account and meet certain criteria. The margin requirement for Bitcoin futures is currently 1.5 times higher than exchange margin requirements.
"TD Ameritrade is purposely enabling certain subsets of customers to access these markets as part of a conservative and deliberate approach to this new marketplace and volatile product," the broker says on its website.
IBD'S TAKE: Are Bitcoin, Ethereum and other digital currencies real investments or a speculator's game? Individual investors should be extremely cautious about diving into this new area. Read this feature about Bitcoin risks and possible gains first.
Interactive Brokers offers trading for both CBOE (GXBT) and CME (BRR) Bitcoin futures. But in order to trade, customers are first required to obtain trading permissions from Interactive for U.S. Crypto Futures. The margin requirement is 50% for long investments. The broker didn't allow customers to short Bitcoin futures initially, but decided to do so in mid-December for CBOE futures, citing client demand.
Interactive charges $5.51 per contract for the CBOE futures and $15.01 per contract for the CME futures. Those rates include broker commission, plus exchange, regulatory and clearing fees.
Though some investors can now trade Bitcoin futures, it's important to keep in mind that the cryptocurrency market is still young and largely untested. Those who have been watching Bitcoin's price, futures or Bitcoin Investment Trust have seen over the past two months just how volatile the currency and its related investments can be.
As Interactive Brokers' website warns: "Trading in Bitcoin futures is especially risky and is only for clients with a high risk tolerance and the financial ability to sustain losses."
Want to read more about the other top brokers, the latest commission trends and more? Check out the full IBD Best Online Brokers special report.