How to Trade in NFTs
NFT investments have become a buzzword not only within the crypto community, but also among collectors and artists, leading many to wonder how NFT investments work. Discover how to trade NFTs.
What are NFTs?
Non-fungible tokens, or NFTs, are records of digital files with unique information that’s stored and linked to the blockchain technology.1 NFTs can be digital records of artwork, collectibles, domain names, sports, trading cards and virtual property that can be bought or sold on a blockchain.2
Note that NFTs are not an asset class, but blockchain technology validating ownership of the digital commodity or item. Therefore, NFTs can be seen as certificates or deeds showing digital ownership of intangible assets that can’t be replicated.
Those transactions are noted on the blockchain, which serves as a public digital ledger that records deals on the decentralised web, offering some transaparency.1
What are fungible assets?
Fungible assets are individual commodities that are interchangeable and thus cannot be distinguished from one another. In economic terms, currency is a fungible asset since it can be exchanged for other items of equal value. For instance, when a R100 is exchanged with two R50 notes, the spending power is still the same.
What are non-fungible assets?
Non-fungible assets cannot be exchanged for the same value because the item’s unique properties cannot be exchanged with that of another. An example of non-fungible assets are collectibles such as the Mona Lisa portrait painted by world renowned artist Leonardo da Vinci, sports trading cards and similar memorabilia.
Placing a monetary value on such collectible items is subjective since their individual properties make them sentimental to the owner, especially if stored and sold while in mint condition.
Why do people want to invest in NFTs?
Some people want to invest in NFTs because it’s a way to make money from the buying and selling of digital collectible items. Investors in this space can make profits from trading NFTs like they would in any cryptocurrency investment. Below are some reasons people want to invest in NFTs:
- Increasing access to ownership. Historically, collectibles were only something that high net worth individuals could access. However, NFTs have since opened the door for anyone to invest in these tokens that can be used in the metaverse. This means these tokens can be bought and sold as well as transferred to anyone across the world without having to pay taxes.
- Decreasing maintenance costs. Collectors of physical collectibles are often at pains trying to maintain the items in their original form as at the time of sale or in mint condition. However, this is not an issue with NFTs since they have lower maintenance costs.
- Increasing the security of collectibles. Some traditional insurance companies don’t cover collectibles. This may mean collectors are not protected against theft or damage to the physical asset. With NFTs, while the tokens are not insured, they have increased security owing to the transparency of the public digital records of transactions that can’t be deleted.
- Easily transferrable. NFTs can be transferred with ease to anyone in any part of the world
Ways to trade in NFTs
Trade in NFT-linked ETFs
Trading in exchange traded funds (ETFs) linked to non-fungible tokens will enable you to diversify your portfolio as your risk will be spread across a wide range of companies. If you’re looking for exposure but at reduced risk then trading in NFT-linked ETFs is an alternative.5
NFT-linked ETFs are instruments that track the performance of investments in a group of companies within the NFT sector.5 An increase in the value of the clustered NFT companies being tracked by the instrument will also result in a rise in the ETF’s share price.
With us, you can track the best NFT-linked ETFs using the KOIN.L: ETC Group Digital Assets and Blockchain Equity UCITS ETF. This ETF tracks the performance of 31 companies within the blockchain and digital assets sector.
There’s also a US fund known as the NFTZ.P: Defiance Digital Revolution ETF, however note that it isn’t regulated in the UK and the rest of Europe.
Trade in NFT stocks
Trading NFT stocks enables you to choose the NFT-linked shares you want to get exposute to. Some trading strategies to perform before embarking on this exercise include fundamental and technical analysis. Some of the stocks exposed to the NFT industry are:
How to start trading in NFTs in 2 steps
Understand the difference between trading and investing
When buying NFTs directly, you’ll be investing and owning the digital asset outright. With us, you can only take a position on NFT shares or ETFs by trading CFDs.
Trading NFTs tends to be risky and is best suited to experienced traders.
| Trading NFT stocks and ETFs | Investing in NFT stocks and ETFs |
|---|---|
| Speculate on the rise and fall of NFT stocks and ETFs | Buy and sell underlying NFT stocks and ETFs |
| Use leverage to increase your exposure to the full value of your position size by paying only a 20-25% deposit | You’ll be expected to pay the full value of the NFT stocks or ETFs you buy upfront |
| Leverage means both profit and loss will still be magnified to the value of the full trade, meaning your gains and losses may be faster than anticipated | You may get back less than your initial investment due to the rise and fall of the value of the NFT stocks and ETFs |
| Take shorter-term positions | Focus on longer-term growth |
| You can look to hedge your portfolio when trading | Build a diversified portfolio |
| Trade without owning the underlying NFT stocks and ETFs | Take ownership of the underlying NFT stocks and ETFs |
| No shareholder privileges | Gain voting rights and dividends (provided the company pays them) |
*Note that both trading and investing have associated risks. Always use our risk management tools before opening a position.
Pick your NFT asset and open your first position
Once you’ve made your choice on the NFT asset you want to trade, you can use our award-winning platform to do this.8 With us, you’ll have over 18,000 shares and ETFs to choose from.
You can trade NFTs using CFDs , which will enable you to speculate on their price movement, however you won’t own the stock outright.
Here’s how to open you position with us:
- Open a CFD trading account
- Open the trading platform and type ‘NFT stocks’ or ‘NFT ETFs’ into the search bar
- Select ‘buy’ or ‘sell’ on the deal ticket
- Set your position size, as well as your stops and limits
- Click ‘place deal’ to confirm the position and open the trade
Trading in NFTs summed up
- Non-fungible tokens, or NFTs, are records of digital files with unique information that’s stored and linked to blockchain technology.
- NFTs provide increased access of non-fungible asset ownership to anyone and not only high net worth individuals
- They offer increased transferability to anyone around the world who seeks to buy and sells digital assets
- Trading NFTs directly will require you to make a payment using cryptocurrency.
- When buying NFTs directly, you’ll be investing and owning the digital asset outright.
- You can trade in NFT stocks and ETFs by opening an account with us
Footnotes
1 The Verge, 2021
2 OpenSea, 2022
3 Binance, 2022
4 Forbes, 2022
5 Capital.com, 2021
6 Based on IG Group's OTC data for October 2019
7 Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.
8 Awarded ‘best finance app’ and ‘best multi-platform provider’ at the ADVFN International Financial Awards 2022
This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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