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Cryptocurrency CFDs - What They Are and the Controversy Behind Them
Traders Magazine Online News, April 3, 2019
Bitcoin burst into the mainstream in 2009, and quickly became the king of cryptocurrencies. Since then, cryptocurrencies such as Lite Coin and Ethereum have also become household names. People were captivated by the decentralised nature of cryptocurrencies. However, there were few real-world places to spend them. As a result, 10 years on, cryptocurrency uptake is still small.
Interestingly you can now trade cryptocurrencies via contracts for difference (CFDs). This enables you to make money by predicting the price movement of a cryptocurrency against the dollar, euro or other ‘traditional’ currency. Notably, you don’t have to own a single cryptocurrency in order to trade with them on the CFD market.
The biggest advantage of cryptocurrency CFD trading is leverage. You are able to trade a much larger amount, by buying as little as 1% of its value. If your prediction is right, you are given a return as if you traded the full amount. To make this easier to understand, let’s assume you would like to make a $10000 trade on Bitcoin increasing in value against the dollar over the next 24 hours. To make this trade, you only need to use $100 of your money. The trade is correct and the price gains by 50%. You are given a return as if you traded the full $10000.
On the other hand, if your prediction was wrong, you will make a loss according to how much the price moved against your favour. Plus, you will make a loss as if you traded the full $10000. Hypothetically, an unsuccessful trade could wipe out your entire capital.
Taking the above into account, CFDs are a good way for smart investors to make a huge return on their investment. If you are good at predicting trends, why make a little on the stock market, when you can make much more trading CFDs?
There are other ways of making money with cryptocurrency. For instance, you could use a cryptocurrency exchange; however,, they are prone to cyber attacks. Secondly, a significant proportion of cryptocurrency exchanges don’t have the proper licenses. This leaves customers in a vulnerable position as the exchange can do what it wants with their money.
On the other hand, crypto CFDs have to be regulated by the financial institutions in their respective countries. It is incredibly challenging to get licensed; therefore, customers are safe in the knowledge that their money is protected.
Understandably, cryptocurrency CFDs have their critics. There are a lot of fees associated with cryptocurrency CFDs. For instance, you have to pay overnight fees for holding tokens. In comparison, cryptocurrency exchanges don’t have as many fees. Therefore, cryptocurrency CFDs are best for short term trades.
Secondly, leverage magnifies your profits; however, it also magnifies your losses. I strongly, suggest you set a stop loss on your account so your capital isn’t wiped out on because of a bad trade.
Here are 3 tips for becoming a top cryptocurrency CFD trader:
1) Invest what you can afford to lose
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