Crypto CFDs
First Published date: 5. August, 2022Last Updated: 15. February, 2023Fact-checked by Adrian Müller
Cryptocurrency and its derivatives are gaining popularity in mainstream investment. For those wanting to capitalize on these digital assets, crypto CFDs can be a great way to get involved in the market. Just like any investment, there are risks associated with crypto CFDs.
Before entering, you must thoroughly consider them. In this article, we will explore how to profit from crypto CFDs. We will also shed some light on the associated risks of trading in this area.
Table of Content
Award-Winning Trading Brokers:
Rating:
Regulated By:
FCA, CySEC, ASIC, FMA, FSA, FSCA
CySEC (EU), FCA (UK), ASIC (Australia)
BaFin, FCA
Demo Account:
✔ Free
✔ Free
✔ Free
Live Account:
$100
$200
0
Spreads From:
Variable from 0.5 bps
Variable from 1.0 bps in EUR/USD
Variable from 0.4 bps
Selection Of Instruments:
2000+
1000+
17.000+ (FX, Stocks, CFDs, Commodities and more)
Support:
24/7
24/7
24/7
Payout:
1 – 3 Days
1 – 3 Days
1 – 3 Days
79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.
What are Crypto CFDs?
CFD stands for “contract for difference.” With cryptocurrency CFDs, traders bet on a particular cryptocurrency’s value without holding the underlying asset – similar to any other CFD.
The difference is that the product here is cryptocurrency. CFDs allow traders to enter a leveraged position and take a long or short position on the underlying asset’s price.
CFDs allow traders to speculate on the price of a crypto asset without owning the underlying asset. This differs from regular cryptocurrency trading, where you buy and sell crypto to make a profit.
You can get into this business without purchasing any cryptocurrencies. CFDs also provide traders with the ability to leverage their position. As such, investors can increase their profits by taking a larger position than their capital typically allows.
We stated above that CFDs allow traders to take a long or short position on a particular asset. It means that investors can take advantage of both rising and falling markets. For example, if a trader believes that the price of Bitcoin will increase, they can open a long position.
It will generate profits if the price increases. On the other hand, if an investor thinks that the price of a specific cryptocurrency will fall, they can opt for a short position for similar reasons.
When trading with crypto CFDs, investors can speculate on the price of a crypto asset without owning the underlying asset. It has many other features, unlike traditional crypto trading and stock trading. CFD and crypto are both unique on their own.
When combined, the result is something exceptional. Crypto CFDs are an attractive trading option for those looking to take advantage of the rapidly growing cryptocurrency market.
How To Trade Crypto CFD?
Cryptocurrency CFD trading is becoming increasingly popular to speculate on cryptocurrency’s price without owning the underlying asset. We provide the essential steps for trading cryptocurrency CFDs below.
Choose a Reputable Cryptocurrency CFD Broker
The first step in trading crypto CFDs is to find a trustworthy broker. You should research the broker’s reputation and ensure you are satisfied with their services and features.
Amongst other things, you should check the broker’s fees, license, features, etc. As well as ensuring they are trusted, reputed, and can meet your expectations.
Create Your Client Account
You have to open a client account with the broker. You must provide various information such as name, address, bank account number, tax information, etc.
You will also need proof of identity to verify your account. The broker will then create your account.
Create Your Crypto Trading Plan
The entirety of trading crypto CFDs lies in creating the right trading plan. Developing a trading plan lets you choose a time frame, manage your risk, and choose the ideal initial investment. This allows you to make better and more precise decisions.
Doing this lets, you anticipate losses and make informed decisions regarding profits. You will also understand the fundamental and technical analysis used to inform your trading decisions.
What Should Be Your Initial Investment In Crypto CFDs?
The initial investment is one of the most important factors when investing in crypto CFDs. Crypto CFDs are a high-risk and high-reward market, and your initial investment will play a massive role in the later investment stage.
You can trade crypto in both long and short positions. This allows you to make money regardless of the market’s state. It is essential to consider how much you should initially invest in crypto CFDs.
You have to take the level of risk you’re willing to take into account. The amount you decide to invest in crypto CFDs depends on several factors, such as risk tolerance, financial resources, and investment goals. You should always start with a smaller amount when starting as a beginner trader.
This helps you gain experience without risking too much of your capital. As a beginner, your initial investment should be just a fraction of your total investment portfolio. This helps you manage your risk and ensure that losses are not too drastic.
As you gain experience, you can start increasing your investment. It is critical to remember this because of the high risk of trading crypto CFDs. You should use caution and invest what you can afford to lose.
Crypto CFD Trading Strategies
Cryptocurrency trading has become increasingly popular over the last few years. Today, traders from all walks of life are exploring digital assets.
Although investing in digital assets is a high-risk endeavor, there are various strategies that traders can use to maximize their profits. Here’s a look at some of the most popular crypto CFD trading strategies.
Scalp Trading
Scalp trading is a popular CFD trading strategy. It involves entering and exiting positions within a short timeframe. This strategy is ideal for short-term traders looking to capitalize on market volatility.
Those using this strategy look to take advantage of small price movements and aim to execute trades regularly. This often takes place multiple times throughout the day.
Swing Trading
The swing trading strategy focuses on capturing gains from price swings rather than the market’s direction.
Traders who use this strategy try to capitalize on short-term movements in the market and take advantage of the market’s volatility. Swing traders typically look to hold positions for a few days or weeks at most and enter and exit trades regularly.
Day Trading
Another popular strategy in crypto CFD trading is day trading. This involves buying and selling digital assets on an intraday basis. It is ideal for traders who want to take advantage of short-term price trends.
Day traders look to open and close trades within the same day and use technical analysis and charting tools to identify potential trading opportunities.
Award-Winning Trading Brokers:
Rating:
Regulated By:
FCA, CySEC, ASIC, FMA, FSA, FSCA
CySEC (EU), FCA (UK), ASIC (Australia)
BaFin, FCA
Demo Account:
✔ Free
✔ Free
✔ Free
Live Account:
$100
$200
0
Spreads From:
Variable from 0.5 bps
Variable from 1.0 bps in EUR/USD
Variable from 0.4 bps
Selection Of Instruments:
2000+
1000+
17.000+ (FX, Stocks, CFDs, Commodities and more)
Support:
24/7
24/7
24/7
Payout:
1 – 3 Days
1 – 3 Days
1 – 3 Days
79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.
Position Trading
Position trading is a long-term CFD strategy that involves buying and holding digital assets for an extended period. This strategy is ideal for traders looking to capitalize on the long-term potential of the crypto market.
Such traders hold positions for weeks, months, or even years. Position traders typically identify strong digital assets with solid fundamentals and use technical analysis to identify potential entry and exit points. They also consider various economic factors and events that could affect the price of digital assets.
Risks Of Crypto CFD Trading
Cryptocurrency CFD trading carries several risks. Every investor must be aware of these risks. Crypto CFD risks are almost the same as CFD risks; volatility, leverage, charge and funding cost, and price transparency. Let’s take a look at each of them in detail:
Volatility
Cryptocurrency markets are highly volatile. This means prices can move dramatically in a single trading day. Traders must be prepared for sudden jumps or drops in the market and possible losses.
It is essential to have a risk management plan in place before entering into a CFD trade. Such risk management methods include setting stop-loss orders to limit losses.
Leverage
Another risk associated with crypto CFD trading is the use of leverage. Although leverage is considered an advantage, it is often a double-edged sword.
Leverage allows traders to open larger positions than they ordinarily afford, increasing the potential for losses. Leverage should be used carefully, as it can result in losses that exceed the original investment.
Charge And Funding Cost
Cryptocurrency CFD trading carries a multitude of charges and funding costs. These costs concern account maintenance and the execution of trades. They can add up quickly, so it’s vital to stay vigilant and consider them in your trading decisions.
Price Transparency
The lack of price transparency in the cryptocurrency market is a huge downside. As the market is still relatively new and unregulated, there is no single source of pricing information.
It can make it difficult to know exactly how much you should pay, if you are paying unnecessarily more, etc. It is also crucial to research and ensure you are aware of market trends before entering into a trade.
Crypto CFD Analysis
There are two ways to analyze crypto CFDs – fundamental analysis and technical analysis. Let’s discuss them briefly:
Fundamental Analysis
Government regulation is one of the critical factors affecting the supply and demand of cryptocurrencies. New regulations are either favorable for the currency and encourage people to invest or unfavorable, resulting in a decrease in the demand for the asset and a drop in the price.
Introducing new cryptocurrency technologies, such as the Lightning Network, can also influence the supply and demand for the asset. Problems with cryptocurrency exchanges can also affect supply and demand for the coins. This can cause investors to lose faith in the safety of cryptocurrency funds, leading to a sharp drop in bitcoin and altcoin prices.
Technical Analysis
Crypto CFDs have become increasingly popular among investors due to their high liquidity and relatively low fees. Technical analysis of these markets can be a powerful tool to develop an edge in the ever-volatile crypto markets.
Some believe the high concentration of crypto retail traders makes traditional chart patterns, such as indications of oversold and overbought conditions, more accurate. Technical analysis techniques can be applied to any market where the price can freely fluctuate, and data is available to see those fluctuations.
Technical analysis of cryptocurrency CFDs can be used to identify trends in the market and predict future price movements. Technical analysis tools such as trendlines, support and resistance levels, and moving averages can be used to identify trends and predict potential changes in the market.
Crypto CFD Gap Risk
Crypto CFD Gap Risk is an essential concept for traders to understand and manage appropriately. Crypto CFDs are a type of derivative that allows traders to speculate on the price of digital assets without owning them. A CFD is a contract for the difference between the opening and closing prices of the asset.
CFDs allow traders to handle a significantly larger position using a relatively small amount of capital, given that they are leveraged. However, the chance of loss also rises due to this leverage.
One of the biggest risks associated with CFDs is the gap risk. This means that the price of an asset could move significantly between the time a trader enters and exits a position. When this happens, the trader suffers a huge loss.
Gap risk is particularly relevant in the cryptocurrency market. In a market involving cryptocurrencies, prices can be highly volatile. Crypto CFD gap risk occurs when there is a significant price swing between the time a trader enters and exits a position.
Fortunately, there are ways to manage gap risk. One of the simplest is to use a stop-loss order, which will automatically close a position if the price moves in an unfavorable direction. Another option is to use a limit order. It only opens a position once the price reaches a predetermined level.
Traders should also be aware of overnight gaps. This is when a market is closed for some time, such as over the weekend. If the price moves significantly during this time, it could lead to an unexpected gap when the market re-opens.
Conclusion
Crypto CFDs can be a great way to profit from the crypto market without owning the underlying asset. However, as with any investment, there are risks involved. It is crucial to understand and manage these risks.
By taking the time to understand the market, learning about the different types of risk, and understanding your risk tolerance, you can increase your chances of making a good return on your investment.
About the author – D. Schmidt
I’m a German stock trader who has lived around the world. I travel extensively and believe that my experiences give me a unique perspective on global markets. I love trading! It’s always exciting to see what happens next. My goal is to help people understand the game so they too can enjoy it to the fullest. In this blog, I will share some tips and tricks that helped me along the way.
