When beginning a career in cryptocurrency trading, the number one piece of advice is to do enough research into the industry. A relatively new market, crypto trading can be lucrative as it offers many ways in which potential traders can make use of the trading rules. One key benefit of trading coins is the ability to trade using CFDs. CFDs – or contracts for difference – mean that investors can trade without ever having to own what they are trading. But how can they be used effectively in your crypto trading journey?
What are CFDs?
The main benefit of a contract for difference is that traders can profit from a price movement without owning the asset itself. The simplicity and ease of use of the security also eliminate the barrier for entry of trading that comes with stock trading – having a large amount of money to begin with. The money you’d get from CFD trading is calculated based on the movement of whatever you are trading on between entry and exit. This doesn’t take into account the asset’s underlying value, as you don’t actually own it. Therefore, there is no stock, forex, commodity, or futures exchange. While purchasing stock, you’ll generally need to have 50 per cent of the cash for the total value of stocks you are buying at a 50% margin; this isn’t the case with CFDs. At some CFD brokers, all you’ll need is five per cent.
How Can CFDs Help My Crypto Trading?
One of the primary benefits of a CFD for cryptocurrencies, such as Bitcoin (BTC) and Ethereum (ETH) – which is an extremely global market – is that a great deal of products are available in one place. CFD brokers often offer the opportunity to trade on everything in one place and are fitted out for the 24-hour nature of the trading cycle. CFDs also provide higher leverage than other kinds of trading. This means that there are lower margin requirements for capital, so you can start trading with a smaller amount of money. Current rules mean that you need between two per cent and 20%, but laws coming into effect later in the year will cause this to rise. The barrier to entry is placed higher for those who don’t have as much upfront capital. Primarily, as the buyer doesn’t own the asset, there are no rules for shorting and borrowing stock. This flexibility is a key reason for using a CFD.
Is eToro an Effective CFD Trader?
Choosing a CFD trading platform is crucial to beginning a journey into crypto using CFDs. eToro began in 2007, towards the start of the fintech boom, and offers accessible and social trading options. With both short-term day trading opportunities and longer-term investments, eToro prides itself as a CFD trader that aims to improve the knowledge and ability of every investor. By offering a social platform so that traders can improve their use of CFDs, eToro could help any trader regardless of their ability.
Using CFDs to trade can be beneficial for every aspect of trading. The major advantage of trading with a CFD is the barriers to entry are lowered, which makes it far more accessible. CFDs help more people get into trading and the multitude of platforms out there mean that this is the best time to get involved.