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Trading Cryptocurrency can prove to be very profitable if you do it right. Cryptocurrency being the newest form of currency, with its virtual nature and decentralization, is one of the most talked about commodities in the investing and trading world. The recent upsurge in the prominence and awareness of this currency type has led to an increase in the number of trading platforms that are offering interested parties an access into the global market. Among these various offerings, Contracts-for-difference (CFD) on cryptocurrencies have been increasingly popular on a variety of platforms.
We all know that cryptocurrencies are digital currencies, which uses cryptography technology to track the buying and selling in a transaction. Therefore, to trade cryptocurrencies, you have to physically buy and sell them. In contrast to this, CFDs provide an efficient way to trade any asset without actually owning it. CFD as the name suggests is a contract or an agreement between a buyer and a seller based on an underlying asset such as a share, commodity or currency pair.
Consequently, a cryptocurrency CFD allows you to speculate on the value of a cryptocurrency pair and use leverage in trading them. Leverage is a key point to understand before trading in cryptocurrency CFDs. It is both an important advantage and a grave disadvantage.
Leverage is a trading tool which allows you to buy and sell CFDs with more capital than you physically have. To open a CFD trade you only need to deposit a small percentage of the trade’s value regardless of how much. This deposit is known as the margin requirement. Trading with margins allows you to maximize your returns or magnify your losses. For instance if you open a cryptocurrency position with a $200 investment and you use a 5:1 leverage, you trade with not only $200 but five times its amount; $1000. As a result, even though you can make more money with small investments, the risk of losing your money is also higher.
This is a key risk you must be aware of before investing in cryptocurrency CFDs. If you think that the value will increase, you can ‘go long’ or if you expect it to decline, you can ‘go short’.
Following are some of the benefits of Cryptocurrency CFDs trading:
No worries about a wallet: You can trade cryptocurrencies without having to actually own any currency and thus you don’t need to worry about storing them in a wallet.
Margins: Trading on margins could allow you to maximize your gains.
Flexibility: You can benefit in both rising and falling market.
Safety: Trade on government-regulated platforms is now possible.
Better customer support: CFD platforms tend to offer a much better customer support than traditional cryptocurrency exchange platforms.
Given all these advantages, trading cryptocurrency CFDs also comes with potential risks like trading on margins could mean the losses are also maximized. These are not suitable for holding onto for long-term and the value of cryptocurrencies is highly volatile and speculative.
In conclusion, the most important thing to remember is that, in the right conditions, trading in Cryptocurrency CFDs can potentially provide great profits, but can also result in sizeable losses if things go wrong. It is entirely up to your preferred trading style.
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