Cryptocurrency CFDs are quite popular with the community. Their ability to provide large profits within just a single day is extremely attractive to investors, hence we have nearly every Forex or CFD broker scrambling to put them on offer. But is it actually better to trade with CFDs or should traders just go for cryptocurrencies themselves? Well, first the difference between them needs to be mentioned.
Difference between cryptos and crypto CFDs
A CFD is a Contract for Difference. It is not the real thing. For example, if somebody buys $100 worth of a Bitcoin CFD, they don’t actually own any Bitcoin. They just own a contract that says they bought it at a certain price point. They can then trade this contract once the prices go up and make a profit. This process doesn’t require a wallet, therefore its a bit more popular with the less tech-savvy investors.
Why are CFDs better?
Every broker that offers crypto CFDs provides traders with margin trading opportunities. Margin trading means to leverage and that’s something people can’t pass on with a volatile market like cryptos. Leverage is pretty popular, but for clarity’s sake, here’s a small explanation. If the company offers 1:10 leverage, then a person, who enters a $100 trade, is actually trading with $1,000. It’s the amount for the trade, multiplied by the leverage. Leverage usually provides more profits, but it can also lead to more losses. Because of the leverage CFD brokers usually require larger initial deposits.
In fact, the website InsideBitcoins’ has made a detailed comparison of CFD brokers and Crypto exchanges, there is a large difference. InsideBitcoins found out that most brokers require deposits of more than $200, while Crypto exchanges can be accessed with less than $50 with only a few exceptions. The thorough guide on how purchases on both platforms are made can be found here. The differences are varied in terms of transactions, but what’s surprising is the disproportionate requirements for initial deposits. Brokers that offer leverage should require their customers to deposit less, while the case is the complete opposite.
Unfortunately, that is where the advantages of CFDs end and the disadvantages begin.
Why CFDs are inferior
One of the primary reasons why people avoid crypto CFDs is the small window for trades. CFD trades have deadlines, and once reached, they close automatically, even if the trader is at a loss. Therefore, the constant updating of the deadline is required, which will warrant a few fees. While owning cryptos does not require any time restriction, traders can hold on to their assets for infinity.
Furthermore, the whole essence of CFD trading is a disadvantage with cryptos. Margin trading itself is used in markets with low volatility as there is space to maneuver for the traders and exit trades while it’s possible. With the crypto market, you don’t get a “calm day”. Assets can grow or fall by as much as 10% within hours, which immediately leads to positions being closed due to Margin calls or traders unable to take profits before a fall after a quick spike.
The bottom line
It’s very hard to tell how exactly these two trading strategies compare to each other on a global scale as the superiorities are extremely subjective. A trader would want to go for CFDs as they’re not hoping for gains in the future, they’re playing the short game. While investors, who are expecting massive gains in months or even years, go for crypto exchanges, where they purchase coins and store them on wallets. Same can be done with CFDs, but it will warrant thousands in fees.
TheBitcoinNews.com – Bitcoin News source since 2012
Virtual currency is not legal tender, is not backed by the government, and accounts and value balances are not subject to consumer protections. TheBitcoinNews.com holds several Cryptocurrencies, and this information does NOT constitute investment advice or an offer to invest.
Everything on this website can be seen as Advertisment and most comes from Press Releases, TheBitcoinNews.com is is not responsible for any of the content of or from external sites and feeds. Sponsored or guest posts, articles and PRs are NOT always flagged as this. Expert opinions and Price predictions are not supported by us and comes up from 3th part websites.
Advertise with us : Advertise