In this article, we go through what Bitcoin CFD trading is. CFD is a trading product that has been popular among forex, commodity and indices traders for a long time. CFD stands for a certificate for difference and means that you trade a derivative product of the underlying asset. By doing this, the brokers can offer you very high leverage on their trading products. Always remember the CFD are trading products with high risk. We will cover
• What is CFD?
• What is Bitcoin CFD trading?
• What are the advantages of Bitcoin CFD trading?
• What are the disadvantages of Bitcoin CFD trading?
• Where can I trade Bitcoin CFDs? (eToro, Markets, Plus500, Avatrade)
What is CFD?
CFD trading allows you to make profits due to changes in prices of underlying assets without actually owning them. You are simply using your judgment to decide whether the price will surge or dip. One of the unique characteristics of CFDs is that they allow you to make money from rising prices as well as falling prices of an asset. Unlike futures contracts, CFDs don’t trade on exchanges and are mostly illiquid.
A CFD position can either be long or short. Taking a long CFD position means you expect the value of the underlying financial instrument to increase. You can also enter a short CFD position to profit from a fall in the price of an underlying asset.
What is Bitcoin CFD trading?
Bitcoin CFD is just a bet between you and a broker. It allows you to speculate on a change in the price of the cryptocurrency. For instance, if you feel the price of Bitcoin will go up, you open an account at a CFD broker and go long on the Bitcoin CFD. If the Bitcoin price surges, you win against the broker. Note Bitcoin CFDs are extremely high-risk. They are not suitable for beginners. You should only invest if you completely understand the risk related to them.
What are the advantages of Bitcoin CFD trading?
One of the primary advantages of a Bitcoin CFD is that you can buy using margin. In other words, you make trades using borrowed money. You will, therefore, be able to open a very large position even if you have just a small deposit.
Let’s say you want to buy Bitcoin (BTC) worth $2000, but you only have $1000 available. If you’re using margin trading, you will be able to borrow an additional $1000.
Suppose your $2000 in Bitcoin increases to $3000, you’ll liquidate it and refund the lender his $1000. This means you’ll be left with a profit of $1000.
Since you don’t own the underlying asset, you don’t need to worry about your Bitcoin wallet getting hacked.
Another advantage of using Bitcoin CFD is that it enables you to profit from both increasing and declining market conditions.
What are the disadvantages of Bitcoin CFD trading?
Higher risk: Strangely, the main advantage of CDF trading is its main disadvantage as well. Leverage amplifies loses in the same way it magnifies profits. You can lose everything you invested in the market goes against you, and your margin falls beneath the agreed level.
Fees: You’ll need to pay overnight fees every day until the day your position is closed.
You do not own the underlying asset: You only speculate on price fluctuations. That means you do not own any Bitcoin. You only own the contract the token is based on.
Overtrading: When you lose money, you may be tempted to overtrade in order to recoup your losses. You will end up in a losing rut, unable to rise again.
Where can I trade Bitcoin CFDs?
eToro is an Israel-based social trading platform that has registered offices in the UK and Cyprus. It was created by two brothers Yony Assia and Ronen in 2007. The platform boasts over 5 million users from over 170 countries. We recommend eToro for newbies, especially those looking to learn CFDs from seasoned traders. Note that the company doesn’t accept US-based traders. Traders from other countries are accepted through the company’s Cyprus and UK regulated branches.
Markets.com is a subsidiary of Playtech — which has been listed on the London Stock Exchange since 2012. With a market cap of over £2.5 billion, the company is fully regulated in Cyprus. The brokerage serves both Bitcoin CFD and forex traders.
Plus500 is one of the reputable brokers around. The brokerage firm is FCA approved and listed by London Stock Exchange (LSE). We recommend it if you are a professional trader and wants to start trading Bitcoin CFDs. Unlike other platforms, Plus500 offers negative balance protection. This means you cannot lose more than your deposit. Furthermore, you can easily deposit money to your Plus500 account with your credit card or Skrill account.
Founded in 2006, AvaTrade offers forex options and CFDs on some asset classes, including cryptocurrencies. The central bank of Ireland fully regulates the CFDs and forex broker. AvaTrade allows you to deposit funds using credit cards, bank wire transfer, and eWallets. Accepted eWallets include NETELLER, WebMoney and DinPay.
See a full list of Bitcoin CFD trading platforms and compare with ordinary crypto trading platforms.
We’ve covered all the essential details regarding Bitcoin CFD trading. We’ve talked about how it works as well as its advantages and disadvantages. Also, we have listed four reputable Bitcoin CFD brokers online. Moreover, we’ve learned that investors who trade CFDs on Bitcoin don’t hold any cryptocurrency. This helps them avoid many of the potential risks associated with it.