NTFs: how to trade in 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 $10 is exchanged with two $5 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 the interest on 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

Trading 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.

Trade in NFT stocks

Trading in NFT ETFs enables you to reduce your risk through portfolio diversification. 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:

• Atari
• Funko
• Mattel
• Shopify
• Shopify
• Coinbase Global Inc (All Sessions)
• NVIDIA

Discover the Best NFT stocks to watch

How to start trading in NFTs in 2 steps

Understand the difference between trading and investing

When buying NFTs directly, you would be investing and owning the digital asset outright. With us, you can only take a position on NFT shares or ETFs by trading via CFDs. Please, bear in mind that trading NFTs tends to be risky and is best suited to experienced traders.

Open an account to trade in NFTs or stocks

To trade in NFT ETFs or stocks, the process has been simplified. With us, you can open a CFD account and deposit funds easily. We’re a FTSE 250 company, fully regulated by the FCA and many other regulators across the globe. You can buy or sell with 0.014 second execution, deep liquidity, and withdrawals are always free and fast.⁶

Pick your NFT asset and open your first position

Once you’ve made your choice on the NFT asset you want to trade in, you can use our award-winning platform to do this.⁸ Across IG, there are over 18,000 shares and ETFs to choose from and most of them are available to you.

You can get exposure to NFT stocks and ETFS by 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:

1. Open a CFD trading account
2. Open the trading platform and type ‘NFT stocks’ or ‘NFT ETFs’ into the search bar
3. Select ‘buy’ or ‘sell’ on the deal ticket
4. Set your position size, as well as your stops and limits
5. Click ‘place deal’ to confirm the position and open the trade

NFTs pros and cons

Before you decide to trade NFTs consider the following general pros and cons below.

Pros:

• 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 sand sells digital assets
• Surpassing the tax man. There’s no requirement to pay tax when buying non-fungible collectible items as compared to buying them through traditional centralised systems
• They improve the transparency of transactions since anything that’s been recorded on the blockchain technology cannot be altered or deleted

Cons:

• Lack of regulation, which may often leave users vulnerable to scams on NFT marketplaces
• Verifying NFT authenticity can prove challenging. If investors don’t perform due diligence, they can buy a copy of a digital asset instead of minted or original content
• Use of fake accounts by the seller to try and inflate the price of each transaction may give a false impression of increased demand for the NFT
• Requiring a potential buyer before you can sell an NFT

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.
• With us, you can trade in NFT stocks and ETFs by opening a CFD account

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