How CFDs on cryptocurrencies work?
- Trading cryptocurrency CFDs is risky! They are complex and highly risky financial products. The crypto markets are highly volatile and subject to significant fluctuations, so trade with caution.
- Prepare! CFDs on cryptocurrencies are not appropriate for all traders. To trade these financial instruments you have to make sure you have sufficient knowledge and experience.
Trade cryptocurrency CFDs with Capital.com
A cryptocurrency is a digital asset used as a medium of exchange. It utilises cryptography to secure transactions, and control the supply of additional units and transfers. In short, a cryptocurrency is a decentralised electronic currency.
Key points
CFDs are financial derivative instruments. Trading them may involve leverage, which should be thoroughly understood before trading. Cryptocurrency prices are highly volatile and subject to big price swings. Traders who want to open positions on crypto CFD should proceed with caution and understand that there is a high risk of making a loss.
CFDs on cryptocurrencies may not be suitable for all traders. Make sure you conduct your own thorough research before buying or selling a crypto CFD, looking at the latest news, analysis and a wide range of commentary on a token or coin.
What is CFD in cryptocurrency markets?
Cryptocurrency markets tend to be highly volatile, allowing traders to speculate on swings in crypto prices.
A contract for difference (CFD) is a derivative instrument that allows you to gain exposure to crypto prices without owning the underlying asset, whether it be a coin or token. A CFD is a contract between a broker and a trader to exchange the difference in value of an underlying asset between the beginning and the end of the contract.
Trading CFDs on crypto involves trading on margin and may involve the use of leverage, which allows traders to open larger positions with less capital. Leverage magnifies both profits and losses. Note that crypto CFD trading with 1:1 margin (or 0% leverage) is also possible.
For example, Capital.com offers a 2:1 margin for a bitcoin (BTC) cryptocurrency CFD, which means you can open a trade worth $100 with only a $50 deposit.
What cryptocurrencies can be traded with Capital.com?
Capital.com’s trading platform allows traders to speculate on the prices of various coins such as bitcoin (BTC), ripple (XRP) and ether (ETH). We also facilitate the ability to trade crypto CFD pairings between cryptocurrencies, such as XRP/BTC or ETH/BTC.
Investing versus trading cryptocurrency CFDs
There are two options when trading on cryptocurrency markets. You can buy cryptocurrency coins and tokens on exchanges, in which case you own the underlying digital asset. This is considered a long-term investment strategy, as you would hold the token, waiting for the price to rise before selling.
Alternatively, you can choose crypto CFD trading, which is considered a short-term strategy due to overnight fees and the nature of cryptocurrency CFDs.
When buying a cryptocurrency as an investment, it is stored in a virtual wallet. When trading crypto CFDs, the position is held in your CFD trading account. This activity is regulated by a financial authority.
Note that both strategies require thorough research before trading. Always conduct due diligence before cryptocurrency CFD trading or investing, studying the latest news and analysis as well as staying up to date with live cryptocurrency prices.