Although the adoption of cryptocurrencies has increased significantly in recent years, digital currencies are still far from replacing our fiat currencies. Yet, no one can deny that cryptocurrencies have proven the usefulness of blockchain technology and Distributed Ledger Technology (DLT). Thanks to cryptocurrencies, we are now able to use these new financial services, which are faster, decentralized, more transparent, and secure.
While nearly 10 years ago, Bitcoin (BTC) was only known to technophiles and early adopters, almost everyone these days is at least vaguely aware of it. As the first cryptocurrency released in the world, it’s still the most valuable cryptocurrency on the market, with a dominance rate of more than 66%, according to Coinmarket.
Being the most popular digital currency, it’s easy to profit from Bitcoin’s price movements, as popular and well-known exchanges such as Coinbase or CFD brokers like easyMarkets offer Bitcoin as a tradable asset.
Bitcoin CFDs vs. Bitcoin Trading on Exchanges
While most people trade cryptocurrencies through exchanges, there is another way that’s quicker, safer, and potentially more profitable, an approach that takes advantage of price movements on the BTC. Introducing – Bitcoin CFDs!
What is CFD?
A CFD stands for Contract for Difference. Investopedia gives the following definition –
‘an arrangement made in financial derivatives trading where the differences in the settlement between the open and closing trade prices are cash-settled. There is no delivery of physical goods or securities with CFDs.’
CFDs replicate the price changes of an underlying asset – in effect, this means that you do not own the asset. You’re merely profiting from the movements of its price fluctuations. This is one great advantage over Bitcoin trading on exchanges, as it means you do not need to worry about how to store your Bitcoins.
Another great advantage of Bitcoin CFDs is that you can profit from rising as well as falling BTC currency pairs. It means that you can potentially make money regardless of Bitcoin’s price direction!
CFDs are based on leverage and “margin trading,” which can significantly improve your outcome if used wisely.
What Does Leverage and Margin Trading Imply?
Margin trading and leverage allow you, as a Bitcoin CFD trader, to get more exposure to the Bitcoin market. Every time you open a position on a currency pair with the BTC, you will put aside a small portion of this position (the margin), and, depending on the available leverage effect, you will get additional funds from your broker to use, thus magnifying your potential gains.
Leverage and margin trading can be powerful tools to enhance your trading strategy’s results, but they can also increase your losses if you’re not careful. As leverage amplifies price movements, if you’re wrong about which direction Bitcoin’s price heads in, your losses will be magnified just as much as your gains if you had been right.
That’s why you need to be conscious of the risks linked to using Bitcoin CFDs before you use a trading account with real money. The best way to protect your trading capital is first to understand what CFDs you are thoroughly, and how can use them in your trading. Then, you should use a demo account to learn more about your broker’s trading features and tools. Finally, you should always use stop-loss orders and modify your position size when needed.
As CFDs are leveraged derivatives, Bitcoin CFDs are a better option for short-term trading strategies, such as day trading or scalping. When looking for the best CFD broker for your trading strategy, be sure to select a regulated broker that can provide a safe trading environment.