By
Mayowa Adebajo
April 5th, 2024
Cryptocurrency Contract for Difference (CFD) trading is currently booming as it provides equal opportunity for all traders equally, and help them leverage the crypto price swings through their prediction. Here are some of the top platforms offering crypto CFD trading.
Over the last few years, the rising popularity of cryptocurrencies and their penetration in the mainstream economy has encouraged financial players to build several crypto-based products for trading purposes. These CFD trading platforms help traders to leverage the volatile nature of digital currencies and earn profits.
What Is Crypto CFD?
One such interesting trading method is called Contract for Difference (CFD) trading. A CFD is basically an agreement on the exchange that leverages the difference in the asset’s value over the period of the contract. The great thing about CFD is that you can still trade a cryptocurrency without the necessity of owning it.
A CFD trade basically lets you predict the market swing at the time of entering a market. Thus, this opens up the potential to earn irrespective of whether the market rises or falls. If you can correctly predict the market movement, you can make profits on either swing. If you predict that the price of the crypto asset will go up, you can initiate a buy CFD trade. Likewise, if you predict that the price of the asset will tank in the future, you can initiate a sell call.
The price difference between your contract opening and contract closing multiplied by the units of contract purchased is your profit/loss. CFD trading basically offers a flexible alternative to traders who aren’t long-term buyers. By just predicting the correct direction of swing based on the market conditions, a trader can earn good profits.
Risk of CFDs
Before going into the benefits of Crypto CFDs its work covering the risks. As outlined in this CFD risk article by the UK regulator the leverage offered increases a trader’s profit and or losses. As cryptocurrencies have more volatility than most other financial products such as currency or indices, this can expose a trader’s capital immediately. In some cases, an individual can lose more than their deposit requiring them to pay additional money to the broker. Based on this a trader should understand and accept the risk before trading any leveraged product such as CFDs.
Benefits of CFD Trading And the Best Platforms
As said, in cryptocurrency CFD trading you don’t need to own the coins entirely. This creates an opportunity for even small traders to participate. Moreover, in CFD trading, as leverage is involved, the purchasing power is higher giving a bigger exposure to market movement in either direction.
Besides, CFD also provides more flexibility to get in and out of the trade using stop-loss orders and other hedging strategies. Since most of the cryptocurrencies are traded in USD or against BTC, the hedging becomes easier by limiting excessive market risks.
A list of CFD provider is shown on CompareForexBrokers with different features for CFD trading include the ability to buy/sell, portfolio hedging, high leverage trading, offsetting potential losses. Some CFD platforms that allow crypto trading is by category:
- Plus500 for those new to CFD traders
- Pepperstone for individuals looking to trade CFDs and Forex
- eToro for those looking for social and copy trading
- IC Markets for individuals looking to for low brokerage
CFD Trading Is Only Available in Some Regions
Cryptocurrency CFD trading is not legal in all countries. For example, it’s against U.S. securities law making it illegal for U.S. residences. It’s important to make sure it’s legal in your region and to choose a locally regulated broker.