Having deep expertise in intercultural communications, Natallia is fond of foreign languages and cultures. She strongly believes that people should continually develop to stay on track, that's why she permanently widens her knowledge in various spheres. Currently, Natallia is fully immersed in crypto, blockchain and financial techs.
CFDs are really attractive to investors and traders on the crypto market as they allow to increase the profit by 100-fold. However, one should be careful because CFDs imply some risks.
Despite being one of the most revolutionary pieces of fintech in recent years, cryptocurrency hasn’t attained the mass adoption enthusiasts had hoped. However, this has not limited the potential of cryptocurrencies. In fact, CFDs, once exclusive to fiat currencies, stocks, indices, treasuries, and commodities, are now available in the crypto trading market.
Cryptocurrency CFDs are incredibly attractive to investors and traders as it allows them to invest in the cryptocurrency of their choice using leverage — giving them the chance to increase their profits by 100-fold. However, the potential losses with crypto CFDs are also amplified, so traders should be extra careful and rigorous with their trading methods.
With that being said, let’s discuss the common crypto CFD mistakes that most investors and traders make.
Do Your Due Diligence
For any kind of investment that deals with volatile markets, it’s always best to be research-intensive if you want to succeed. And this is especially true for investments that involve blockchain tech and cryptocurrencies. There are many different kinds of coins you can trade using cryptocurrency CFDs, from big ones like Bitcoin and Ethereum, to lesser-known digital currencies like Tron, Cardano, or Monero. Choosing which to invest in entails checking for signs of stability and clear timelines for the development of the coin.
Other key signifiers that you have to take note of when choosing a cryptocurrency CFD is through reading up on a coin’s reputation, credibility, and the underlying technology behind it. This will give you an insight into what makes it stand out from the crowd and how it will perform. While there are absolutely no safe bets in the world of crypto CFD trading, having the right knowledge and understanding of the market can help you distinguish between which currencies are likely to be profitable and those that won’t.
Be Extra Careful with Leverage
As we’ve mentioned, leverage is what makes CFDs a more appealing investment compared to trading stocks or participating in forex. In general, cryptocurrency CFDs allow you to trade with up to 1:2 leverage. This means that an investment of $100 can allow you to gain (or lose) $200. This largely depends on your broker and some even allow investors to trade with 1:500 leverage. However, losses are also magnified with high leverage rates, so traders should be extra careful when dealing with high leverage positions since CFD trading has other drawbacks too, like margin calls and the lack of shareholder privileges.
Employ Risk Management Systems
Trading cryptocurrencies is already a risky affair — and CFDs carry the same risk. That’s why anyone who’s looking into crypto CFD trading should have a risk management system in place. One way to mitigate losses is by enforcing stop-loss and take-profit orders. These necessary precautions can help guide you in trading something as volatile as crypto CFDs, helping you reduce your losses and maximize your profits.
By having a stop-loss order, you set the rate at which a losing deal of yours will close, thus preventing huge losses and allowing you to take a rest from constantly monitoring your account. On the other hand, setting a take profit order dictates your preferred trading platform to close a trade if it hits a certain value above the current market level. While both of these can potentially bring bigger profits when it comes to trading CFDs, you still need to be alert and adjust accordingly once a deal is already open.
Overall, trading cryptocurrency CFDs is not an easy investment, and anyone who is looking to make fast money by participating in the crypto CFD market is bound to fail without the right knowledge. Yet, if approached right it can be a hugely profitable form of trading. If you want to expand your knowledge on cryptocurrency, fintech, and the trading market, be sure to check the glossary we have here on Coinspeaker.