What are Crypto CFDs - Should You Buy Crypto or Trade CFDs?

As interest in crypto is rising, so are the ways to make money and passive income with it. One way to earn money is through cryptocurrency CFD trading. Crypto CFDs are just like day trading, but with cryptocurrencies rather than fiat money. So what exactly are crypto CFDs, and should you buy crypto or trade crypto CFDs?

Let’s find out!

What are Crypto CFDs?

Charts going down, WHICH IS NOT GOOD

Crypto CFDs provide a chance to make a quick profit. With CFD trading, you speculate on the future movement of specific cryptocurrencies without having to make a significant investment upfront.

CFDs allow traders to leverage the advantages of fluctuations in the market. Through CFDs, you can speculate on the future trajectory of a crypto asset such as Bitcoin, Ethereum, and more.

In other words, CFDs are contracts that pay the trader for the difference between opening and closing prices. Traders speculate on the price movement and decide to either go long (buy) or short (sell). If they go long and the price of the coin rises, they make a profit. But if their prediction goes wrong, the trade results in a loss.

Crypto CFD vs Regular Trading

Crypto CFDs offer several advantages over regular trading systems. Some of the benefits include short-sell positions for assets, access to overseas markets, leveraged trading, and a lot more that you won’t get with regular trading.

The trader enters into a contract with the broker instead of opening a position directly on a certain market. Some of the most popular examples of crypto CFDs are platforms like Pepperstone, XTB, eToro, IG, and Eightcap.

These platforms allow traders and CFD brokers to trade cryptos easily and intuitively.

How do Crypto CFDs Work?

Man clicking on a MacBook trying to figure out what a Dogecoin is

Crypto CFDs work similarly to day trading. Here’s how it works: The trader chooses a CFD asset offered by the broker. It can be a stock, index, cryptocurrency, or any other asset that is in demand in the market. The traders open the position and set parameters. Setting parameters simply means that they let the platform know whether they think a coin will have a long or short position. This is all about the trader’s intuition and experience.

Then the two engage in a contract agreeing on the opening price for the position. They also set parameters, such as whether or not to include additional fees. Once the trade is opened, it will remain open until either the trader decides to close it or it gets closed automatically.

The traders can also use features like stop-loss or take-profit points. If the position closes in profit, the broker will pay the trader. However, if the trader loses, the broker charges the trader for the difference. There are a lot of advantages and disadvantages that come with CFDs.

Why you Should opt for CFD Trading

  1. Crypto CFD trading has a huge potential for generating profit without massive amounts of capital. CFD trading allows you to put a small percentage of the value of an asset towards the trade and gives you a real advantage. This also helps people who are relatively new to this type of trade.
  2. Extreme volatility in crypto in general provides a lot of opportunities to make a profit. Once you realize whether or not a market is volatile, you will be able to get huge benefits in the CFD market.
  3. CFDs also involve short-term trades, so they are less dependent on a crypto asset doing well in the long term. This means that you don’t have to hold the trade for long, and you can trade successfully even before a certain coin decreases in value.
  4. Trading CFDs on the stock market comes with a time limit, but with crypto CFDs, there’s no time limit. The stock market has limited trading hours, but crypto CFDs can be traded at any time of the day. The crypto market never closes.

Things to Look Out for Before Trading CFDs

  1. The main disadvantage of CFDs is that you need to constantly make sure that the broker’s price and the market price are the same. Or else, you can get scammed.
  2. The less liquid and riskier the asset is, the wider you will have to pay in the spread.

Should You Buy Crypto or Trade CFDs? Which One Is Better?

Charts going down, as they always do

So should you buy and trade crypto or trade CFDs? Which one is better? You should decide based on your risk tolerance level, understanding of crypto, and long-term financial goals. Even though CFD trading has more risk, the main benefit is that the trades happen very quickly, which gives you a lot of profit at once. With crypto CFD trading, you can have almost instant profits if you make the correct call. This is what makes it so powerful. Also, you don’t have to go through the hassle of buying and safely storing coins in different crypto wallets.

The main disadvantage is that if you make the wrong call, you will have to pay for the loss too. Rather than any other method of trading where you can wait and hope for the price to go up, crypto CFDs will make you pay for the instant loss because that’s just how it works.

On the other hand, if you plan to invest in crypto for the long term, then trading through exchanges makes more sense. Although this will require an investment in a secure wallet and research on the exchange you wish to choose.

Whichever path you choose, always do thorough research on the assets that you plan to trade. Also, start with small trades and invest only the amount you can afford to lose.

Final Take

Crypto CFDs provide you with an effective way of earning money quickly and effectively. However, with great profits come great risks, and that’s why you should be careful with CFD trading. Opt for CFD trading only if you have previous trading experience. This way, you will be able to manage risk better.