Cryptocurrency has become a popular investment opportunity in recent years due to its decentralized nature and privacy. While direct investment in cryptocurrency is possible, it can also be inconvenient, risky, and expensive. Relatively new, trading cryptocurrency through Contracts for Difference (CFDs) can offer an alternative way to invest in this growing market.
What are CFDs?
CFDs are financial derivatives that allow traders to speculate on the price movement of an underlying asset, such as cryptocurrency, without actually owning the asset. This means that you can profit from both rising and falling prices in the market, without having to actually purchase the currency. That is why CFDs are becoming an increasingly popular way to invest in crypto.
So, what are the advantages of trading crypto via CFDs vs. a crypto exchange?
Advantages of investing in crypto through CFDs
Risk:
One of the biggest advantages of investing in cryptocurrency through CFDs is not owning real crypto. You might ask yourself, why is that? Well, considering FTX’s recent collapse and Silvergate Capital going in the same direction, owning crypto can seem even riskier than ever. When FTX went bankrupt, investors lost all the content of their crypto coin wallets, and now, there is place for concern regarding Silvergate Capital as well. Fortunately, that is not possible with crypto CFDs as investors do not own the actual coins. However, CFDs do not come without risk, which will be mentioned as well.
Leverage:
Another advantage of trading cryptocurrency through CFDs is the ability to use leverage. It means you can trade positions larger than you would have been able to with only your own capital. You can also increase your potential profits without having to put up the full amount of capital required to purchase the underlying asset. For example, if an investor wants to invest $1000 in Bitcoin, but the current price of Bitcoin is $50,000, they would be able to buy only 0.02 Bitcoin. However, if they invest in Bitcoin through a CFD with a leverage of 10:1, they would be able to trade $10,000 worth of Bitcoin, giving them a much larger position. Please keep in mind that every coin has two sides, and even though leverage can help you trade larger positions, the larger the position, the higher the win or loss can be.
Short selling:
CFDs also allow investors to short sell, which means that they can make money from the fall in price of an asset. For example, if an investor believes that the price of Ethereum is going to fall, they can short sell Ethereum CFDs and make a profit if the price does indeed fall. That being said, short selling should only be done by professional traders as it involves the risk of losing money.
Access to a wider range of assets:
In addition, CFDs allow investors to access a wider range of crypto assets than they would be able to if they were buying the coins directly. For example, an investor may not be able to buy a certain altcoin directly, but they may be able to trade it through a CFD. Meaning, CFDs can help you take advantage of market opportunities more easily.
Regulation:
Furthermore, trading real cryptocurrency is riskier as opposed to trading crypto through CFD. Some countries have strict regulations regarding buying and selling cryptocurrencies, but trading CFDs provides a more regulated environment for investing in cryptocurrency. It goes without saying that trading CFDs is still risky, however it is important to note that many CFD brokers are regulated by the relevant financial authorities, which provides an added level of security for traders.
Spreads:
Spreads refer to the difference between the bid and ask prices of an asset, and they represent the cost of trading that asset. In general, the smaller the spread, the lower the cost of trading. When investing in crypto through CFDs, you are likely to have lower spreads compared to buying crypto directly.
Liquidity:
CFDs provide access to high liquidity markets and allow for fast execution of trades. They offer better liquidity compared to direct cryptocurrencies, as they can be easily converted to fiat currency and withdrawn without the need for a process of multiple conversions and transfers.
At times, withdrawals from CFD brokerages can be simpler and faster compared to withdrawing cryptocurrencies. For example, you do not need to transfer funds to a separate wallet or go through an exchange to convert your crypto to fiat currency.
Security:
Finally, crypto wallets are much easier to “steal”, whereas CFD withdrawal procedure does not allow you to transfer money to anyone or anywhere that is not under your own name.
In conclusion, trading cryptocurrency through CFDs is a more convenient and cost-effective way to invest in this growing market. With its convenience and cost-effectiveness, it’s no surprise that CFDs are becoming an increasingly popular way to trade cryptocurrency. If you’re considering investing in cryptocurrency, consider the benefits of trading through a CFD before making a decision.
