Cryptocurrencies have become increasingly popular financial instruments. As it’s becoming more mainstream and better regulated, analysts believe cryptos are on the brink of another bull run.
Get a comprehensive overview on how to trade crypto via CFDs, the risks involved and how it’s regulated by financial authorities.
What are cryptocurrencies?
They’re digital, or virtual currencies generated by encryption procedures, also known as mining. Cryptocurrencies operate as a decentralised currency, meaning they’re independent of a central bank. Bitcoin is an example of a cryptocurrency. Have a look at the live price in the BTC/USD chart.
What are CFDs on cryptocurrencies?
CFD is the acronym for contract for difference. It’s a type of short-term trading that allows the investor to speculate on the price movements of a variety of financial instruments such as cryptocurrencies, without actually owning the primary asset. A CFD can be referred to as derivative instrument.
When trading CFDs on any cryptocurrency, you’re speculating on the difference between its current and its future price. In other words, if you foresaw the trend direction, you gained. If the trend moved against you, you will have incurred in losses.
This short video on trading cryptocurrencies CFDs further illustrates the concept. It uses the popular digital currency Bitcoin as an example.
Advantages of trading cryptocurrency via CFDs
It allows a short-term investment – on what is typically considered a long-term investment – that can generate income during a limited timeframe.
If you invest directly on crypto, your money is kept in digital wallets. Your money is safe in your account when using a broker for CFDs. Brokering services are also regulated by financial authorities, further enhancing the security of your funds.