Education

The advantages of trading Bitcoin CFDs

In the past years, trading bitcoin through exchanges and via CFDs have grown increasingly popular.  While both instruments are potential ways to make money in the cryptocurrency market, many factors have made it evident that trading CFDs offer some advantages over trading bitcoin directly at a cryptocurrency exchange platform.

Here are some of the reasons why bitcoin CFD trading is very beneficial.  But first, we will answer the question “what does CFD stand for?” by explaining what a CFD is:

What is a Bitcoin CFD

The abbreviation CFD stands for Contract for Difference.  It is classified as a derivative. Basically, you never the actual owner of the underlying asset, but instead, the price of the asset is what you are instead trading on. Just like regular trading, if you open a buy/long position and the asset increases in price, you’ll make a profit.  If you open a sell/short position, and the asset’s price falls, you’ll make a profit.

CFDs have been in existence for a long time and are popular investment instruments. But brokers started offering CFDs for cryptocurrencies only recently.

But why trade Bitcoin via CFD and not just buy/sell bitcoin through a cryptocurrency exchange?  Well here are some advantages of CFD trading that surpasses the benefits of buying bitcoin on an exchange.

Opening Short Trades

If you suppose the price of Bitcoin will fall, you’re able to short the cryptocurrency by opening a sell/short trade.  This is something you cannot do when you actually hold bitcoin.  As an investor, this offers you much more flexibility in terms of your trading strategy.

High-Frequency Trading and Automated Strategies

Some Bitcoin CFD brokers provide a full API.  So those with some development experience can develop custom scripts to trade. Other brokers allow scalping and high-frequency trading via their MT4 platform.  This type of trading is much more complicated on cryptocurrency exchanges as they aren’t just built to handle this sort of load.

Speed of Execution

Generally, execution speed is very fast with CFDs. Cryptocurrency exchanges rely on trading volume; therefore, your order won’t get filled if there aren’t many people trading.  Brokers, on the other hand, are connected to liquidity providers who provide guaranteed and often prompt execution.  As a trader, this implies that you can promptly react to market changes.

 Leverage

Leverage lets you control a more substantial position with a small amount of capital.  Experienced traders use this to their advantage, and even when the market isn’t moving much can profit big in a single trade!  Of course, leverage does increase risk, and this is something to try out.

Secure Brokers

Cryptocurrency exchanges suffer from trust issues.  Exchanges have shut down out of the blue, some have been hacked, with hackers eloping with users’ funds. One benefit of brokers is that many are fully regulated, and users’ funds are kept segregated and usually insured.  Brokers have to comply with regulation whereas most cryptocurrency exchanges aren’t regulated.

Low Fees

Your fees will be minimal, but it all depends on which broker you use.  Opening or closing trades usually don’t incur any charges. You only have to pay a spread, but some brokers will charge specific commissions on trades.  But generally, trading through a CFD broker will be much cheaper.

Some Bitcoin CFD Brokers to try

More and more brokerage firms are adding cryptocurrencies to their platforms. There are some that we have used and can recommend. eToro is one of the best brokers when it comes to offering an excellent interface. They also provide copy trading. Whaleclub also has a great interface.  If you’re used to using a MetaTrader4 broker, then you might want to try Evolve Markets.