Cryptocurrency trading opens a door of financial stability for traders, and when it is coupled with CFD (contract for difference), the profits may double up for investors. Cryptocurrency CFD trading places a trader in a comfortable situation that can put a break on losing money rapidly. Virtual currency is being cited as the replacement for fiat currencies. Advanced traders are making full use of investing in the digital currency market. Thus, crypto trading is currently the fastest emerging financial market that is receiving long-term investments from traders.
The detailed guide for cryptocurrency CFD trading 2021 will highlight some of the important aspects. Traders have plenty of markets at their disposal for investing their money. It will highlight various digital currencies, underlying assets, CFD trade and decipher a trading method.
What is cryptocurrency?
A cryptocurrency is a modern-day digital currency that is decentralised. That means, it is not controlled by any central body or government. It is on its own. A peer-to-peer network channelises all transactions and looks after checks and balances. Thus, there’s no central server. Instead, it works on a network of computers placed across the globe. No government body can dictate its prices. So, people find that aspect in their favour and trade in the market.
Moreover, it is not available in a physical form. There are no notes or coins like fiat currencies. These are stored in offline or online digital wallets. Mostly, they are used as a medium of exchange. However, business tycoons like Elon Musk have made bitcoin more acceptable in various industries.
All transactions that take place here get added to a shared digital ledger.
How does CFD work?
CFD or contract for difference is a method where traders and brokers get an opportunity to invest in various assets and markets by agreeing on a contract. Here, the trader does not need to open a position directly in a market for buying and selling an asset.
Brokers and traders decide for themselves by replicating market conditions. And when the position closes, they settle the difference of prices (start and ending). Thus, it increases trading opportunities for traders.
CFDs come with a plethora of advantages that a person is unable to find with direct investments. For example, the overseas market is always within reach of the radar of traders. Besides, short positions for assets and leveraged trading are some of the crucial elements that come along with CFD trading.
A broker offers myriad instruments or assets for trading in the financial market. It can be forex, stock, indices, commodities or cryptocurrency.
Before opening a position, traders select an asset and then create parameters based on their assessment of the market. Leveraged amount, investment, and bidding are some of the few parameters that get along while trading CFD trading, especially with cryptocurrency.
Interestingly, when you trade CFDs using cryptocurrency, the position will remain open until or unless you don’t force it to close or apply an automatic command for a closure.
Traders and brokers enter an agreement over certain things, including the position’s opening price and closing price. Moreover, they decide if there’s a need to apply overnight fees while trading cryptocurrencies or an underlying asset. Notably, the position remains open until reaching the take profit point or stop loss. Also, it waits for the expiration of the contract.
What is cryptocurrency CFD Trading?
Good brokers often offer CFD trading for traders. It allows people to speculate on the movement or rise and fall of any crypto coin. Thus, one does not need to purchase crypto currencies physically. Also, they do not need to sell the underlying asset. The asset’s future value on trading CFDs can help in earning massive funds.
Now, bitcoin CFDs are gaining popularity among the masses especially after the hike in their prices in the year 2020-2021. Traders have realised that investing in cryptocurrency can lead to great income in a short period.
You do not need to seek ownership of underlying digital coins while trading with CFDs on cryptocurrencies. A trader can go short if he/she can speculate the value of cryptocurrency will hike and vice-versa.
For receiving the full exposure, one needs to make a tiny deposit called margin. It helps in gaining control over the underlying market. The full size of the position assists in calculating the profit and loss.
When anyone trades CFD, they need to pay spreads. It is the difference in rates between selling and buying. The contract is bought with the buying price. Similarly, selling price is used for exiting. If the spread is smaller, a short movement will work in your favour providing you good gains.
Benefits of the crypto CFDs
Crypto CFDs have plenty of benefits or advantages attached to a trader.
- You can trade using them for seven days a week, 365 days a year. So, there’s always a chance to make a comeback even if someone loses money.
- You can trade in any direction using CFDs and without the need to purchase. It is purely based on speculation. Thus, it is beneficial for traders. Buying and selling are equally accessible.
- Liquidity is the biggest prospect of trading in crypto CFD trading. The volumes are high. So, you can sell or buy your favourite crypto coins at the given rates.
- You do not require special wallets for trading in the market.
- There’s no maximum deposit limit attached to it
- Gain exposure to multiple exchanges globally for trading.
- The tax benefits of CFD trading are immense with cryptocurrency
- Do not need to owe the products or assets while trading with CFDs
- It allows you to leverage your position for bigger gains
- You can easily speculate on the price moves
- One may benefit from falling and rising prices of the market
- A trader can begin trading using fiat currencies
- Margin trading can magnify gains
- Get access to the increased range of cryptos for investment
- For reducing the risk, tools like stop-loss and limit orders are available
Some elaborated advantages for Cryptocurrency CFD Trading
Investment in cryptocurrencies happens intending to earn quick money in the financial market. CFDs have several advantages compared to direct selling and buying cryptocurrencies in the global market.
Begin with an easy start
There are several technical details in direct cryptocurrency trading. Traders who are not wary about technology or not tech-savvy enough tend to suffer from direct trading. So, for anyone who is not familiar with verification processes, crypto-related nuances, and cryptocurrency exchanges, CFDs prove to be helpful in those cases.
One can start trading with brokerage firms that have long-term experience in offering crypto CFD services to traders with ease. New traders can pick up brokers like Capixal, ETFinance that have good customer support and simple account set-ups for investors. Moreover, they also have one-click trading features.
Traders using CFD instruments are most likely to enhance their portfolios while trading in the market. Also, they have an advantage to making gains out of price movements with an optimum surety.
A huge possibility of leverage trading
One reason that supersedes everything for crypto CFD traders is the leverage trading that comes with the contract for difference. People can trade in the market or speculate more than the actual money or funds they have in their accounts. So, if a trader chooses 1:10 leverage, it would mean that he/she needs to spend only USD 10 to take a position on assets worth USD 100.
So, it opens the gate for huge profits even during small movements of prices. Also, some regulatory bodies are averse to binding digital assets; the leverage can be adjusted as per the requirement by traders. Thus, the margins on CFDs are larger compared to futures contracts. However, one has to be careful while applying the tricks of leverage in the market.
The pace of trading expedites with the inclusion of CFDs in cryptocurrency. It does not involve selling or buying here. Hence, all transactions or bids get transacted within split seconds. So, it saves time for traders. They can devote that time to multiple trading in a day. So, chances of making big profits every day increase manifolds.
So, you can use the profit funds to reapply in other transactions and earn quickly. Hence, a trader gets the flexibility to exercise trading every now and then. Reacting to market movements also becomes quick. On the other hand, transactions of cryptocurrencies on blockchain technology may sometimes take hours to days to execute. So, it may frustrate investors to no end. It also depends on the type of coin and the capacity of cryptocurrency to handle the pressure of volumes. The network also plays a necessary role here.
Best Regulatory Bodies
Most CFD brokers are looked after by the best regulatory bodies. It ensures transparency and lets people have trust while trading crypto CFDs in the market. FCA (financial conduct authority), CySEC (Cyprus securities commission and exchange) are some of the best regulatory authorities that see over activities of brokers. Thus, there is no chance of any cheating or deceitful intent under these watchdogs.
Thus, traders and clients of several broker companies get the protection of optimum levels that give them the confidence to invest in the market and make good returns. Furthermore, even if there’s some bankruptcy, traders can apply for compensation. Therefore, market players are always basking in profits and risk-free trading.
Most crypto CFD brokers are equipped with great customer support as queries flow in huge numbers. Thus, to resolve them, it is necessary to have a decent customer support staff that brokerage firms like HFTrading and Global TradeATF have. Moreover, there are multiple channels of connectivity for investors that include, email, phone numbers, texts, messages and live chat. So, there’s no waiting period. Customers can connect with their brokers instantly.
The cryptocurrency market is one of the most volatile markets of the world despite being relatively new to traders. There are a tremendous amount of speculative interests that are triggering changes. For example, the world saw how bitcoin created a record by touching a mark above USD 60,000 in 2021. Meanwhile, it also touched a low of USD 5851 in October 2018. So, that reflects the volatility. Also, it can be seen as a massive investment opportunity for investors.
Those who invested at the right time earned maximum profits. So, the volatility factor interests the public. And with CFD coming into play, it becomes even more exciting to invest or earn through speculation. The intraday price movements are massive that provide chances for capitalising in the market. So, going short during different periods is easy for traders. They can apply scalping for quick money-making and control losses as well. So, market volatility in crypto CFDs trading works as an elixir.
The rapid fluctuations require a little attention to managing risks that may be associated while trading in the market. So, it is imperative for people to come up with planning of strategy while wanting to trade in the market of darn uncertainty. Traders need to come prepared along with proper research. It will ensure they do not miss out on the opportunities offered by the market.
So, developing a risk management strategy is a key to becoming a successful trader in the money-making market.
Immense liquidity in crypto CFD market
The biggest motivation for a trader or an investor in any financial market is liquidity. It helps in going short or selling assets at any price. So, one does not have to worry about holding cryptocurrency assets for a long time. It can be sold at any given point and encashed. So, the biggest worry of investors is that they may not get the best price for their investment goes away.
It is backed by increased volatility, quick transactions, increased accuracy in trading and tremendous technical analysis. So, these factors contribute to profit booking that encourages investors in making further investments in the crypto CFD market.
The improved liquidity concept gets driven by CFD. Thus, people are preferring using the derivative to increase their probability of profitability in the market of hope.
Quick account opening
When you are trading cryptocurrencies, account opening becomes the easiest thing. Several brokers are there in the market which take only a few minutes to open an account. So, traders can begin trading any moment of the day. In the CFD, you speculate the underlying asset without purchasing or controlling it directly. So, in that case, opening an account becomes easier. All formalities are taken care of by brokers like TradedWell and T1Markets. So, investors can focus on their ultimate goal of trading.
These are some of the reasons why traders are finding their mojo in crypto CFD trading or investment.
How to buy cryptocurrencies?
For buying cryptocurrencies, you need a trading strategy that lets you engage in profitable trading. Moreover, you need to locate a cryptocurrency exchange for buying them directly. You have to seek help from brokers like IGM FX, 101investing, PrimeFin, ROinvesting and others to trade cryptocurrency in the financial market.
You need to open an account on one of the retail investor accounts. You can use the trading CFDs method for better earning by investing less amount of funds in the market.
Fundamentally, one may find many similarities between other markets and cryptocurrencies, but technically there are slight differences. Cryptocurrencies are not available in the physical form like shares. They are a digital property. However, stocks have companies backing them. Thus, they have physical assets on the ground. But cryptocurrencies do not have it. They run solely on speculation and on the trust of buyers and sellers.
Most of the cryptocurrencies work on blockchain technology. Also, there’s a major difference between fiat currencies that are governed by the government in the centre. They are used in forex exchange, like euro, dollar and pound sterling. Central banks of different nations give guarantees and mint currency notes. However, there’s no such possibility here. Cryptocurrencies are mostly mined by programmers. Moreover, these require crypto exchanges for trading in the market.
Some characteristics of cryptocurrencies
Cryptocurrency markets are growing speedily in the world and their acceptance in the world is going at a similar pace. Successful traders of a stock market are migrating to trade cryptocurrencies looking at the future and returns in the crypto market. Experts are offering investment advice to be patient while investing in virtual money. It is important to learn about their characteristics and features before investing hard-earned funds. People should know about important trading tools, market prices, capital gains, technical indicators and the risk of losing money.
Cryptocurrencies are not governed by any nation of the world. They are decentralised entities. Thus, there’s no central authority governing them or taking any decision on their behalf. A distributed and open network validates and processes transactions of cryptocurrencies.
One does not need to offer identity to the public to transact trade cryptocurrencies. However, their transactions reflect in the open, which provides transparency. Users can use digital wallets and conceal their identities while exchanging cryptocurrencies. They can authenticate their transaction without any hassles, securely.
Cryptocurrency mining is the major process through which cryptocurrencies are brought to the market. Bitcoin is one of the cryptocurrencies which is capped at 84 million coins. After that, no one would be able to mine it. Also, professional programmers and special computer systems are required to solve the mathematical equation for mining. It may take hours to days for extraction. Thus, the supply is pre-defined here. Unlike fiat currencies, they can’t be minted at will in financial markets.
However, some cryptocurrencies are coming with unlimited supplies but their market value is quite low, which creates doubt in the minds of investors.
Irreversible and immutable for traders
Once the transaction gets initiated, there’s no way a trader can reverse that on a ledger. That’s completely immutable. No trading platform can enforce further changes once transactions have been made. Sometimes, investor accounts lose money in these circumstances. The best financial advice in these circumstances is to continue trading for making up for the losses.
The transactions get recorded on blockchain technology. Thus, no one can hide or make any further changes.
Most popular cryptocurrencies in the market
Since the inception of bitcoin, several digital coins have dawned in more than a decade. Currently, there are more than 4000 cryptocurrencies in circulation worldwide. As per their convenience and choices, people invest in them.
As per the current market cap, some of the most popular cryptocurrencies are:-
- Bitcoin (USD 815 billion)
- Ethereum (USD 344 billion)
- Cardano (USD 45 billion)
- Ripple (USD 36 billion)
- Dogecoin ( USD 31 billion)
- Polkadot(USD 19 billion)
- Bitcoin cash (10.4 billion)
- Solano (USD 10.1 billion)
PS: – The market capitalisations are subject to change. The following data is from coinmarket.com (August 9, 2021)
Categories of cryptocurrencies while trading CFDs
Cryptocurrencies can be classified into various categories based on the features and characteristics that they offer to clients and users. Primarily, there are four divisions in cryptocurrencies:-
- Stable coins
- CBDC (Central Bank digital currencies)
- Exchange tokens
- Privacy coins
While trading with CFDs, cryptocurrencies require full proof backed strategies to negate any risk warning. For making full use of speculating on an underlying asset, a trader should be well prepared to trade CFDs. He/She must know margin trading, otherwise, there’s no stopping losing money rapidly in the crypto market. All trading platforms must be used wisely, else retail investor accounts lose funds. It is unlike trading stocks. Traders should know how to take a CFD position to avoid the high risk of losing money.
There are several trading strategies available to traders depending on their market position, crypto exchange, and trading account. Here are some of the following strategies:-
- Day trading strategy
- Swing trading
- Trend trading
For successful crypto CFD trading, traders should pay heed to sell price and buying price, position trading, and various complex instruments. You may lose money when trading cryptocurrencies without a trading tool. So, always ensure you have one. A swing trader can make good bucks by acknowledging bitcoin’s price during speculation. If you are trading in the United Kingdom, then Uk’s financial conduct authority can keep a check on your broker. So, ensure you trade with such online trading portals. Bitcoin trading is the most popular phenomenon. But if you know how to sell CFDs or buy them, there would be no money lost.