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- CFDs stand for the contracts for differences
- CFDs crypto trading offers traders the ability to trade cryptos without having to own them directly
- While trading crypto CFDs, you can have access to higher leverage
- While trading CFDs, you are speculating on the price movements of cryptos
CFD Crypto Trading - What Even Is It?
Start crypto trading: There are two main ways you can trade crypto: using CFDs or opening an account at a crypto exchange.
The general idea behind cryptocurrency trading is very simple: you are buying crypto when the price is low and selling it once the price goes up. The difference between the price you paid and received is your profit. However, simply buying and selling cryptocurrencies is not the only way to invest in this ever-growing market.
Another way to invest in the crypto market is to use CFDs. In fact, CFD crypto trading is very popular globally, and lets traders benefit from price fluctuations in the market without having to own the actual asset.
Before we go any further, let's talk about the meaning of CFD itself. In the world of finance, CFD stands for the contract for difference. CFDs are a type of derivatives that act as a contract between a trader and broker.
While trading CFDs, you do not buy or sell the underlying asset, in this case, cryptocurrency, directly. This is the main difference between trading cryptocurrency vs. cryptocurrency CFDs; when you are trading cryptos directly, you buy and sell the assets. As for the CFDs, you are simply speculating on the possible price movements of the asset.
CFD trading also gives traders the ability to profit from both uptrend and downtrend, which is considered a huge advantage of CFD trading. In most cases, those who prefer to use CFDs to trade cryptos do so because it is easier to use the platform you are already familiar with rather than opening a new account on crypto exchanges.
There are several distinct advantages of trading crypto CFDs, such as:
- Higher Leverage
- No Exchanges
- Higher Volumes
- Lower Variety
- Deadlines
- Commissions
Regular Crypto Trading or CFD? - Advantages
When it comes to the advantages of CFD trading over regular crypto trading, there are several of them that we can discuss. For example, unlike regular crypto exchanges, brokers that offer traders CFD crypto trading usually offer them higher leverage as well. But, this is not all. There are many other reasons people decide to trade CFD cryptos, So, let’s talk about some of the most significant advantages below.Higher Leverage
While talking about the advantages that CFD trading has over regular crypto investment, one of the first things that come to mind is the higher leverage. In most cases, crypto traders are offered zero or very little leverage to traders.
CFDs are known for offering traders higher leverage, which is one of the main reasons why many people are trading cryptos using CFDs. While regular cryptos may offer leverage of about 1:2 or none at all, CFDs can offer leverage up to a few hundred.
Leverage is used by millions of traders every day to increase their positions and generate higher turnover. However, it should be noted that higher leverage can also be quite dangerous for traders as it can increase trading risks.
That said, many people choose to trade crypto CFDs instead of actual cryptos because of the difference in available leverage.
No Exchanges
As we have already said before, one of the major differences between trading crypto vs crypto CFDs is that while using CFDs, you do not have to own the cryptocurrency directly. This is making trading a lot easier, and you do not have to spend any time or money exchanging fiat currencies to cryptos. Crypto CFDs use fiat currencies while trading, which means that traders do not have to withdraw their coins to the bank account or any other payment system, paying a lot of money in commissions during the process. While trading CFDs, there is no need to buy cryptocurrency directly. The process of CFD trading involves traders and brokers filing a contract about the possible direction that the price of a particular cryptocurrency might take. If you end up making the correct prediction, you are earning profits; however, if your prediction is not correct, you end up losing your money.Higher Volumes
In general, when it comes to the amount of money you can trade, deposit, and withdraw on a regular crypto exchange is much lower than what a CFD broker would allow. This gives you the ability to trade more and grow as an investor. Many traders keep this fact in mind when deciding which one to use for trading, regular crypto trading or CFD crypto. However, this is not all. There are many other advantages of trading crypto CFDs as well. For example, many traders prefer CFD crypto trading over regular crypto trading because of the lack of regulations. Although this can be seen as a negative side, many traders think that because CFDs are less regulated than other financial markets, it is easier to trade them. Being less regulated gives CFDs brokers the ability to offer traders higher leverage and trading volumes. However, it should also be noted that the lack of regulations of the CFD market is increasing the risks of trading. Still, many people prefer to trade cryptos with CFDs.Trading Crypto vs Crypto CFDs - Disadvantages
Although there are many advantages that CFD crypto trading has over regular crypto trading, there are some drawbacks as well. While talking about physical crypto compared to crypto CFDs, it is very important to understand these disadvantages fully.
Among the disadvantages that CFD crypto trading has are the lower variety, deadlines that the traders should keep in mind, and higher commissions that might be associated with CFDs trading.
So, let’s talk about some of the biggest disadvantages of the CFD crypto market below.