What Is Crypto CFD and How Does It Work?

Cryptocurrencies have become an integral part of the modern world. Without exaggeration, it is hard to imagine a world without Bitcoin or other cryptocurrencies. 

However, the topic of the article isn’t about the history of the world’s most popular cryptocurrencies. What do you think about crypto CFD trading?

It is worth noting that the method of day trading, which has its roots in the stock markets, has become part of the crypto markets as well. 

Importantly, crypto CFDs are more complex compared to traditional spot trading. However, it makes sense to gather more information about it. 

First of all, what is crypto CFD?

Importantly, you can make money thanks to crypto CFDs. Thanks to crypto CFDs, you have the chance to make a profit without risking losing a lot of money. Nevertheless, you need to pay attention to risk factors. 

As in the case of conventional CFDs, crypto CFDs allow traders to make the most of fluctuations in the market. 

Crypto CFD and traders 

Do you know how crypto CFDs work?

It works via a trader making predictions regarding the future of a cryptocurrency.

The trader needs to put down an insignificant percentage of an asset’s value as collateral (of sorts) for the trade. In the case of crypto CFDs, cryptocurrencies can be traded in pairs. 

Let’s take a look at available currency pairs:

• BCH/USD
• BTC/USD
• ETH/USD
• LTC/USD
• BTC/ETH
• XRP/USD

As you can see, the choice is limited. However, it is still possible to make money. Beginners should try to use one or two trading pairs.

As we have answered two important questions about crypto CFDs, we can switch to the advantages and disadvantages of crypto CFDs.

Let’s start with the advantages. Without a doubt, crypto CFD trading does have the ability to produce a profit. What’s important is that you don’t have to be rich in order to take advantage of the crypto CFD. 

Furthermore, you have the right to select the assets. It is up to you to decide which asset to trade. 

It is a well-known fact that cryptocurrencies are famous for being volatile. However, it is possible to make money thanks to crypto’s extremely volatile nature. 

Unlike the stock market, the crypto market never sleeps. So, it is possible to buy or sell cryptocurrency at any time. 

Disadvantages of crypto CFDs

We need to note that CFDs are volatile, to say the least. So, you need to be careful when it comes to CFDs. 

It isn’t the best idea to rely on one or two cryptocurrencies. It is better to create a diversified portfolio. 

Unfortunately, it isn’t possible to discuss all the advantages and disadvantages for various reasons. Nevertheless, the above-mentioned advantages and disadvantages will help to understand the pros and cons of crypto CFDs. 

Which one is better: CFD or ETF?

There is a huge difference between an ETF and a CFD. As a reminder, a CFD is essentially speculative trading based on market trends as well as the viewpoints of the trader. The situation is different when it comes to an ETF (Exchange-Traded Fund). An ETF is an asset that you can invest in that has a stake in various companies.

Importantly, some exchange-traded funds can be too invested in one company. For example, any negative news regarding the above-mentioned company has the potential to affect the value of your portfolio. 

Nevertheless, the opportunity to invest in more than one company means that you are diversified and more likely to produce a return. 

What about CFDs? They give you the ability to control the companies that you invest in based on your judgment. 

Crypto CFD platforms 

Hopefully, there is no shortage of interesting crypto CFD platforms. Let’s focus on several crypto CFD platforms. 

Pepperstone is a great option. It is noteworthy that Pepperstone supports crypto CFD trading with twelve different cryptocurrencies. It also has three own indexes.

The platform’s range of software, including MetaTrader 4, also known as MT4, cater 

for all ways to CFD trade. 

We shouldn’t forget about Plus500 as well. It has the widest range of cryptocurrencies to trade — 13, to be correct. Plus500’s Crypto 10 Index stands as the benchmark of crypto indexes. 

Interestingly, its crypto index serves as the crypto equivalent of the S&P 500 in the U.S. for stocks. In terms of fees, given that Plus500 is also zero-commission, the costs of trading are quite low. 

Have you heard about EightCap? 

This platform is regulated by the ASIC, FCA, SCB, as well as CySEC. It lets you trade CFDs on a number of different assets, including cryptocurrencies and forex. In total, there are more than 1000 financial instruments. The above-mentioned platforms offer two trading platforms – MT4 and MT5. 

What you need to know about crypto CFDs

Even though crypto CFD trading can be pretty lucrative, keep in mind that crypto CFD trading is fraught with high risk and volatility. 

In order to help you, we have outlined steps to take when you want to trade crypto CFDs.

First of all, you need to learn more about cryptocurrencies. The crypto market is unique. So, it is important to learn how it works. It is desirable to gather more information about the technologies as well as concepts such as blockchain, etc.

The crypto market is extremely volatile. So, it is vital to know factors that have the potential to influence the crypto market. These factors can include new regulations, new coin ICOs, etc.

It is critical to find a suitable platform. As you can see, there is no lack of crypto CFD platforms. However, not all of them are suitable for all types of traders. So, you need to be careful when it comes to platforms. 

Furthermore, any platform you select should have built-in risk management tools. Moreover, the platform should have technical analysis tools as well as educational materials. It is quite difficult to make decisions without the help of technical analysis tools. 

There is no need to have a digital wallet or a crypto exchange account in order to trade crypto CFDs. You only have to open an account with a leveraged trading provider. 

Without a doubt, it is crucial to create a trading strategy. As stated earlier, the crypto market is unique. Fortunately or unfortunately, the crypto market is more unpredictable compared to conventional financial markets. 

Even though volatility can lead to tremendous amounts of profits, volatility can also lead to a complete loss of your investment. 

Conclusion 

Now, you know what crypto CFD is and how it works. Its advantages outweigh the disadvantages. However, it is vital to select a crypto CFD platform that meets your needs.