Interest in cryptocurrencies has never been greater. There are now more than 5,000 altcoins in existence, and that number is growing all the time. Bitcoin is perhaps the best known, but others like XRP and Ethereum have also made their mark.
The market for cryptocurrency is characterised by extreme volatility, but this hasn’t stopped people wanting to invest, hopeful of being ahead of the curve when crypto prices shoot up once again. At a basic level, trading in cryptocurrency is as simple as buying and selling crypto via an exchange. If the price goes up before you sell, you make a profit, and vice versa.
There are alternatives and less direct ways to invest in cryptocurrencies, which suit many people, and these are known as Contracts for Difference, or CFDs.
What are CFDs?
A CFD is a financial derivative. You don’t actually own cryptocurrency when you invest in CFDs. Rather, you buy a contract that states the future price for the cryptocurrency you are investing in. For example, if you believe bitcoin is going to rise in value within a specific time frame, but you don’t want to actually buy any crypto, you could invest in a cryptocurrency CFD instead. If you are correct and the price rises, the broker then pays you the difference between the new price and the old one.
If this sounds like an excellent idea, read on to learn some of the key advantages of trading cryptocurrency CFDs.
It’s Easier than Direct Buying/Selling
Investing in cryptocurrency CFDs is much easier than trading direct. All you need to do is set up a trading account on a reputable online trading platform, of which there are many. Most of the larger online trading platforms offer cryptocurrency investment options these days, so you just have to choose the platform with the most competitive fees and best customer service.
A More Secure Trading Environment
Buying and selling cryptocurrency can be risky. Not all cryptocurrency exchanges are legitimate and if you pick the wrong one, you could see your investment money disappear into the ether. You also have the problem of storing your cryptocurrency, which means setting up a digital e-wallet. Again, there are security issues to be careful of.
Maximize Profits with Leverage
Leverage is a powerful tool for online traders. Leverage lets you trade with more capital than you have, which is useful if you don’t have a significant sum of money to trade with. For example, if a trading platform offers you a leverage of 3:1, you only need $1,000 to open a position of $3,000, which could yield large profits with very small price movements.
Trading with CFDs means you can react very quickly to price fluctuations, which is harder to do when you buy and sell currency via an exchange.
The only real downside of trading cryptocurrency CFDs is the risk associated with using leverage. Leverage may increase your profits, but it can also increase losses, so traders need to be extra careful.