The cryptocurrency market is the most volatile market in the world – the values of the assets within it sway quickly from growing to falling, and there are few who can brag about always being able to correctly predict the changes. Those who have been successful in doing so have managed to make a handsome source of income from the crypto exchanges over the past few years.
But they will also be happy to find out that CFD trading has recently been introduced into the crypto markets. This happiness stems from the fact that the traders will now be able to create bigger profits from themselves through CFD tradings. Some of the best trading platforms have been quickly introducing the ability over the months. UproFX being one of the first firms to do so.
Trading on exchanges
Trading on cryptocurrency exchanges is the way coins and tokens have been traded up to now. The process is rather simple: a trader will join one of the most popular (or less so) exchanges and see what cryptos seem most attractive to them. They will purchase the currency and then wait for the increase in the value of the asset, in order to sell it and make a profit off of it.
While quite risky, especially since we mentioned the unpredictability of the crypto markets, the scheme is rather straight forward and was how many of the people made huge profits in the 2017-2018 BItcoin rush. Even the losses associated with this strategy are quite limited – you are only going to lose with what you are okay with losing. You can sell your coins and tokens the moment they start decreasing in value, thus avoiding losing all of your money because of the fall in the value of a currency.
But today, the income from such trading is limited. If you have been observing the crypto market over the past year, you will have noticed that the coins have been falling in value, and the occasional increase is sporadic and barely able to produce a handsome income for the traders. This is why the industry has grown so excited about the introduction of CFD trading into the crypto market.
Crypto CFDs: the opportunities and the risks
CFDs have been around on the international financial and stock markets for a while now. These guys are sort of a “meta-trading” concept that is a little more complicated and a little more profitable than simply buying assets and selling them. CFDs allow traders to take either short or long position on an asset, effectively betting that the asset is either going to decrease or increase in value, respectively.
While doing so, the traders also have certain leverage with their broker. This means that they only deposit a fraction of the money actually being bet. If the prediction fo the trader ends up being correct, they get to keep the profit from the entire amount of the funds, instead of just a small fraction.
With the introduction of Crypto CFDs to the industry, the traders now have a chance to do the above with cryptocurrencies. So, if you can correctly predict the direction of the change for Bitcoin, and take a position with a certain amount of funds and leverage, you will be able to make huge profits.
The problem is, again, the volatility of the market. You see, it is much harder to predict the direction of the cryptocurrency market than it is to predict the direction of a traditional asset. With the margin trading, which is done with CFDs, you will have a lot of leverage. If you end up making the wrong prediction, the leverage will end up working against you. This means that not only will you lose the money you bet, but also the money that was “given” to you through the leverage by the broker. This leaves you in debt. So, if the potential for huge profits is there, so is the potential for huge losses.
So which one to trade with?
The answer to this question is entirely up to you. The risks and benefits are on different scales with the trading techniques, but we do have a recommendation. If you are a beginner trader, or have traded CFDs but don’t have experience with cryptocurrencies, try to stick to simply trading on the exchanges first, at least before you are well acquainted with the industry.
The problem is that CFDs are a much more involved process that demands a lot of technical and general knowledge about the market and the industry itself. This kind of high level of involvement with trading requires a lot of experience and a lot of knowledge, which is why we only recommend CFD trading to seasoned, experienced and highly knowledgeable traders in the industry.