How Can CFDs Help with Cryptocurrency Trading?

For anyone looking for a new investment opportunity in Rancho Santa Fe, cryptocurrency can hardly be ignored. What started out as a speculative option back in 2013 is quickly turning into a popular investment for just about everyone – and those savvy enough to invest in the volatile early years are seeing dividends. In 2010, somebody used 10,000 Bitcoins (BTC) to purchase two large pizzas. Today, those pizzas would have been paid for with $100 million. While the crypto boom may not be as significant for investors this late into the game, the bubble has yet to fully form, and getting involved with cryptocurrency could help turn millions into billions. Plus, the increase of contracts for difference (CFDs) could make investing in cryptocurrency a whole lot easier.

What are Contracts for Difference?

Contracts for Difference – CFDs – refer to the instrument used in investment whereby they act as a contract between a trader and a broker. Instead of outright owning the asset, the trader will be guaranteed the difference between the current price of the asset (x) and the price of the asset in the future (y). One of the bigger benefits of trading CFDs is that you don’t need as much capital to outlay initially in order to participate. As only a fraction of your capital needs to be deposited, you can effectively go further. The barriers for entry are therefore lower and it provides an opportunity for newer traders to get involved. This is especially beneficial for a relatively new industry such as cryptocurrency trading, which itself has lower barriers to entry, to begin with.

Why are CFDs Good for Cryptocurrency?

CFDs can be beneficial for cryptocurrency as potential investors can use them to speculate on price differences and changes that might affect the price of a cryptocurrency token. CFDs are particularly useful for cryptocurrency as they are beneficial to shorter term trading. Given how quickly the price of a cryptocurrency token moves, the spreads are less and therefore losses are lower. The trader is charged a swap fee for staying in a position overnight, so CFDs wouldn’t benefit a longer-term trading strategy. Bigger spreads are mitigated against by greater increases in value. CFDs can also work alongside stop-loss orders, which are perfect for the cryptocurrency market given how quickly positions can change. Stop losses identify when trading should close on your product to prevent huge losses. Setting them fairly wide apart and at a value that won’t be triggered often is critical, otherwise, you could end up losing your capital through the volatility of the market.  

CFDs provide one opportunity for trading cryptocurrency that utilizes the independent strengths that the cryptocurrency industry relies upon. Not all trading would be suitable under CFDs and sometimes it’s better to own the asset outright. The fact that cryptocurrency itself is an intangible concept over some commodities means that traders feel more comfortable opting for the CFD option when trading cryptocurrency.

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