Crypto CFD trading and how it works
Cryptocurrencies are arguably the best thing that has ever happened to the world. The fact that they made the digital world even more vibrant is astonishing. Many people know crypto’s for their speed and reliability for transactions. However, many entrepreneurs were able to implement the technology into different types of industries. The main attraction still remains to be the monetary aspect.
Being a monetary asset, cryptocurrencies quickly saw popularity with a number of brokers. However, the problem with these brokers was that they couldn’t afford millions of dollars worth of crypto reserves. Therefore they opted for the next best thing, which are CFDs ( Contracts for Difference). However, there is still misunderstanding with the traders on how to actually utilize the CFD crypto trading, well, we’re here to clarify it.
Cryptocurrency CFDs explained
Cryptos are designed as a means of exchange. Their creation dates way back, but ultimately there are a few who deserve the best mentions. The best-known one is, of course, Bitcoin, the one that started it all, made people rich and ruined some financial analysts’ reputations. However, there are numerous others like Ethereum, Ripple, Bitcoin Cash, Litecoin, Dash etc. All of these cryptocurrencies, as implied in the name crypto, are encrypted codes designated to make transactions through the internet.
Now, how do these high-tech assets come in contact with CFDs? Well, what is a CFD? A CFD is an agreement about an asset, most of the times these assets are shares, indexes, commodities and currency pairs, which make cryptos the newcomers. What happens when you trade CFDs? The moment you open a CFD trade, you’re basically speculating whether or not the price of a specific asset will increase or decrease. Now this may sound like gambling but it truly isn’t, the art of speculation in enforced by numerous hours of research. What’s more interesting about CFDs is that you don’t own any of the assets. For example, when you enter a CFD trade of gold, you don’t actually own a golden nugget that can be delivered to you, you are just speculating about the price, your leverage being a contract.
The way this works is that you call that the price of Dollars, for example, will increase by a specific amount. If you are right, then you’ll be paid multiples of the number of units you bought or sold. But, if you’re wrong then you’ll be looking at losses not to be joked with. Now, what does this have to do with cryptocurrencies? Well, cryptocurrencies are assets just like stocks and indexes. The same thing can be done, by speculating about their price. In addition, this was the best way brokers could implement cryptos on their platforms, in order to accommodate all of their customers.
How do crypto CFDs work?
Just like any other asset, crypto CFDs enable you to speculate about a specific cryptocurrency’s price. What’s good about this is that no matter the price increase or decrease, you still have a chance to make profits. Now every CFD brokerage has different offers for their services. The moment you compare CFD crypto brokers you’ll notice the differences and what actually sets them apart.
Most of the times it is their fees and leverage.
Now, remember that Leverage is one of the most important aspects of cryptocurrency CFD trading. it can be something that helps you become the best at your trading or something that will destroy your account, so remember to be quite attentive to the information brokers give you about leverage. The other deciding factor should be the margin requirement. The margin requirement is the percentage of a trade that you actually need to deposit in order to conduct it. For example, you are entering a trade of $10,000, depending on the platform that you choose you may receive somewhere between 20-5% margin requirement. What this means is that you may need to deposit $2000 or $500 in order to actually conduct the trade.
Cryptocurrency CFD trading can be quite a catch, but there are a lot of people who prefer to refer to other means of trading. For example, some people don’t like the fact that you can’t actually own the asset you are trading with CFDs, therefore they opt for cryptocurrency exchanges. Now the difference between crypto exchanges and CFD trading is a topic for another article.