How to Trade Crypto CFD
By Nancy William 4 minutes
To understand what Crypto CFD is, let’s first understand what Crypto trading involves. There are two factors around it:
- Buying a fraction of a virtual asset, for instance, Bitcoin.
- Holding the tokens in a digital wallet until you decide to sell.
With that said and compared to Crypto trading; trading cryptocurrency CFDs follows a different structure. CFDs are derivative financial instruments traded by speculating on many financial markets without assuming direct ownership of the underlying assets.
Crypto CFD traders trade cryptocurrencies as pairs against regular currencies like forex trading. The US dollar is undoubtedly the most famous pair. However, today, many crypto CFD brokers also offer multiple crypto pairs with different fiat currencies, including British pounds, euros, Swiss francs, and Japanese Yen.
3 Crypto CFD Trading Essentials
Using CFDs to trade crypto comes with greater flexibility since you can always decide whether an asset’s prices will increase or fall without actually owning the asset. That offers diverse trading opportunities, as traders can profit from buying or selling crypto.
The spread is one of the most significant risks in trading crypto CFDs. It refers to the difference between the price you can buy and sell. For example, a broker may bid a Bitcoin price of 7000 /7100. That means a spread of 100.
Crypto CFD traders do not have to own the underlying crypto assets. Instead, you can open a long position. That means the value of your trade position will increase as the price of the acquisition grows. Alternatively, your trade position will lose weight if the asset’s prices fall.
Going short in crypto CFD trading allows your position to gain value if the underlying asset’s price drops. However, it will also expose you to losses and decrease your position’s value if the asset price increases. It is almost like short-selling a company’s shares.
Forecasting Crypto Price Movements
CFDs and cryptocurrencies are highly speculative financial instruments with rapid and enormous price swings. Even minor incidents such as unexpected news could significantly impact your overall performance and returns. That’s why it’s crucial to know how to predict price movements. Two main approaches exist for analyzing crypto, including fundamental and technical analysis.
Fundamental analysis relies on the industry news and events that affect cryptocurrencies, crypto exchanges, and other related businesses. The main factors to consider when conducting basic research include government regulations, the introduction of new crypto technology, and issues at crypto exchange platforms. Negative news and events can easily make investors lose faith in their crypto investments’ safety, impacting a sharp decline in prices.
Technical analysis uses past price data to determine significant supply and demand instances. Some traders usually think that the high concentration of brokers makes it possible for crypto prices to follow the traditional chart patterns and indicators. Nevertheless, technical analysis can apply to any market, with free price fluctuations and available data for viewing those results. The leading trading platforms, such as the Bitcoin Prime platform, provide a full suite with all the necessary charting tools and technical indicators to help traders make informed decisions.
Trading on Margin
Crypto CFD trading offers leverage that allows investors to trade the markets with smaller initial deposits. That makes it more accessible and cost-effective compared to other forms of investment. However, it also bears an extra level of risk. Therefore, it is essential to develop and implement a sound risk management strategy such as a stop-loss order before opening any position in crypto CFD trading.
Crypto CFD trading is a relatively new concept to most investors. However, it offers more significant opportunities that you can leverage to maximize the returns on your investments without any significant risk exposure.
As mentioned, Crypto trading is far more different from Crypto CFD trading. This guide highlighted essential ways for you to safely trade and ways how to predict price movements through various analytics.