Everything You Need To Know About Index Trading in Crypto

Did you know it’s possible to trade cryptocurrency indexes?

Well, it is certainly possible. It’s just one of the many signs that cryptocurrency is here to stay – it’s becoming just another investment opportunity similar to gold, stocks, or bonds. 

Anyway, this article will cover everything that you need to know about index trading in cryptocurrency. This includes what it is, where the index funds are offered, and whether or not it’s a good idea. 

What is index trading in cryptocurrency?

Cryptocurrency index trading operates in the same manner that index trading operates in traditional finance. Basically, a group purchases a variety of different cryptocurrencies to form a fund and then sells shares of this fund of cryptocurrencies. 

It’s an excellent way to get exposure to cryptocurrencies without having to purchase and hold cryptocurrencies on your own.

Where are cryptocurrency indexes offered?

Many Forex traders offer cryptocurrency index funds. The most popular platform for crypto index trading is CMC Markets.

They offer three different cryptocurrency index funds, which is a pretty standard breakdown of the different cryptocurrency indexes offered. 

All Crypto Index

The first, and most popular, index that CMC Markets offers is the All Crypto Index. As the name suggests, this index contains every cryptocurrency that CMC offers on their forex exchanges, which mitigates much of the risk of individual cryptocurrencies.

Emerging Crypto

The emerging cryptocurrency consists of cryptocurrencies that are in the newer stages and more speculative than the more established cryptocurrencies. 

These cryptocurrencies usually consist of Monero (XMR), Cardano (ADA), Dash (DASH), and Stellar (XLM). They aren’t the worst cryptocurrencies out there, but they do have a little bit of ways to go before any level of success. 

Major Crypto

Finally, cryptocurrency indexes that contain only major cryptocurrencies are offered. These are some of the more popular cryptocurrency indexes out there because they offer the most upside. 

The cryptocurrencies in these indexes are almost always Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), and Ripple (XRP). Some of these indexes also contain Bitcoin Cash (BCH), but that is becoming less common as Bitcoin Cash is beginning to lose market share. 

Is it worth it to invest in a cryptocurrency index fund?

A common concern with cryptocurrency index funds is that they are not useful. It is easy enough to purchase cryptocurrency yourself and store it on a hardware wallet. 

So, what is the point of a cryptocurrency index fund?

Really, it just makes the entire process easier than doing it yourself. It also makes trading cryptocurrency much easier.

Is it a good idea to invest in or trade a cryptocurrency index fund?

This really depends on your risk tolerance. If you have a lower risk tolerance, then a cryptocurrency fund might make sense. 

However, cryptocurrency tends to track the price of Bitcoin, so you can skip the fund and just invest in Bitcoin. 

In fact, investing in Bitcoin is our recommended choice if you want exposure to cryptocurrency. The only risk with individual cryptocurrencies is that you run the risk of losing your entire investment if the cryptocurrency. But Bitcoin has been around for so long that we find it unlikely that it will go to zero. 

In other words, Bitcoin is a safe bet. 

Is the weighting the same for every cryptocurrency in an index?

This depends on the index, but generally not. Major cryptocurrencies tend to make up a higher percentage of the index than smaller cryptocurrencies. For instance, Bitcoin Cash makes up only 5% of the CMC Markets Major Crypto Index while Bitcoin is 35.66% of that fund. 

This method is used to mitigate risk.

Is cryptocurrency index trading a scam?

It depends on the exchange you use. If you use a trustworthy exchange, then you should avoid most of the scams. We also recommend only trading cryptocurrency indexes that have been audited by a major accounting firm. 

There really is not any way to know if the fund actually contains the cryptocurrency that it claims to hold other than an audit by an independent auditing firm.

Final Thoughts

That covers it for everything that you need to know about crypto index trading. It’s a worthwhile option if you want bigger exposure to cryptocurrency than you can obtain on your own by investing in individual cryptocurrencies.