Neither the CFDs (Contract for Difference) nor the cryptocurrencies are something new. If you are involved in financial trading or have a strong finance background, you may be well-aware of both the assets. But, the chances are high that you don’t know how and why cryptocurrencies are feasible to trade through CFDs. So it’s the right time for you to acquire new knowledge.
There are certain advantages and disadvantages associated with trading CFDs on crypto. Traders who deal in regular crypto and try to govern the market are mostly confused when it comes to CFDs. If you are wondering why to choose the opposite option rather than trading in regular crypto, then read the article and learn about this new trading strategy.
Crypto CFD Advantages
Before I begin to discuss a few advantages, I’d like to mention that it’s not going to be a “call to action” discussion; things are here to provide you valuable information. In the end, the decision is up to you.
Only cryptocurrency CFD providers can afford to manage margin trading. The CFD trading brokers are here to guide you with trading activities under dissimilar situations. Although big exchanges have started to implement things on their platforms, one-on-one interaction with your trading brokers can guide you better and allow you to get control over uncertain risks. In 2017, when cryptocurrencies got a big hit in the markets, CFD trading brokers were there to encourage this new trading strategy. One of the exciting features of this whole new concept is that you can relish leverage on your trades via margin trading platforms. It means you will be getting additional funds on every trade you open from your brokerage. For instance, you opened a position with $200, and now you are trading bitcoin. Let’s assume that bitcoin has grown by 50%, and you will be getting $300 in the end, which makes $100 as profit. So that’s primarily the reason why traders are preferring CFD brokers while crypto prices are rising.
The CFDs have better liquidity. It means you can get direct cash in no time. Since CFD is a fiat currency, there is no requirement of conversion into EUR or USD. If you need cash on an instant basis, request your broker, and he will approve it. On the other hand, with crypto, you first need a wallet, then you need to send that s to wallet, and then it is being transferred to exchange. After all this process, you get to withdraw. Moreover, there are restrictions to what extent you are allowed to withdraw within a day. However, when things are linked to CFD brokerages, you hold fiat currency on your account. Plus, you can mitigate the potential risks associated with daily withdrawal limits.
Security & License
It is noted that CFD platforms are more secure because you hardly get to experience incidents like hacking and funds stealing. Contrarily, crypto exchanges are more vulnerable against misfortunate events, and high-risk is associated with keeping your assets via such a platform. That’s why people prefer cold wallets to store their assets. However, when you happen to trade crypto CFDs, your account is going to be your wallet, and there is no such threat of hacking. Moreover, you will be relieved to know that CFD brokers are licensed (legally bound by local financial regulators). It means customers can safeguard their interests with the help of local laws. There are low chances of financial damage on this platform. In case anything goes wrong, the broker is bound by law to compensate you for your loss. Just like your get to benefit on MT4 platforms.
Crypto CFD Disadvantages
Unluckily, where there are advantages, there are also a few disadvantages of crypto CFDs. Let’s just briefly discuss them.
Since you do not deal in actual/real cryptocurrencies, when trading with crypto CFDs, you speculate on the prices. You expect to get rewards in case you are correct. In such a case, you are not in a position to direct or affect the market. Also, you get limited diversification. You don’t get the chance to diversify on spot. With crypto CFD, you first have to take out the funds and then invest somewhere else.
Margin trading is not long-term. Most of the time, individuals get to close their positions after a couple of days (crypto CFDs are no different). With the CFD platform, you are always given a deadline to close your position. If you happen to fail, you can probably lose your money. However, if you are looking to extend that deadline, you will have to pay a fee (typically 1% of your position). As a result of such limitation, it is not feasible for CFD traders to enter in a long-run position by using the crypto. Because when they will be ready to close their positions, they will have already paid more in fees.