What Are Cryptocurrency CFDs?

Cryptocurrency-meaning and definition

Cryptocurrency, also known as crypto-currency or crypto, refers to digital or virtual currency that employs cryptographic techniques for secure transactions. It exists exclusively in electronic form, operating independently of any central authority on decentralized networks like blockchain technology. Crypto trading has grown in popularity since exploding onto the scene in 2017. Whilst there are now thousands of cryptocurrencies, the most popular are Bitcoin, Bitcoin Cash, Ethereum, Litecoin and Ripple.

Cryptocurrency serves as a digital payment system that doesn't require banks for transaction verification. It operates on a peer-to-peer basis, allowing anyone anywhere to send and receive payments. Unlike physical money exchanged in the real world, cryptocurrency transactions are recorded as digital entries in an online database. When transferring cryptocurrency funds, these transactions are logged in a public ledger. Cryptocurrency is stored in digital wallets.

Cryptocurrency CFDs-meaning and definition

Cryptocurrencies have also begun to generate a lot of interest as an alternative investment or CFDs. Investors can easily sidestep all these concerns by trading cryptocurrencies via CFDs. Using CFDs allows very fast transaction times, which is useful for such a volatile market.

Trading cryptocurrencies through a broker is a convenient method. Instead of managing a digital wallet for storing coins and trading on a cryptocurrency exchange, traders can opt for a broker that offers cryptocurrency trading via CFDs. This allows traders to speculate on the future price movements of cryptocurrencies, with the flexibility to take both long and short positions.

With CFD brokers, traders can trade CFDs to trade the cryptocurrency markets without the need to buy "coins" or "tokens", which can be a lengthy process. A CFD on cryptocurrencies works similarly to CFDs based on other currency pairs. This means that traders would exchange the value of the Crypto of your choice with a conventional currency such as the US dollar.

How does Crypto CFDs work?

In CFD crypto trading, traders forecast the directional movement of particular crypto coins. Opting for a long position (buy) reflects their expectation of price appreciation, while a short position (sell) signifies their anticipation of a price decline. Ultimately, their profit or loss hinges on the variance between the entry and exit prices of the crypto coin CFD.

1. Traders analyze the market to pinpoint potential upswings and downturns in various crypto assets.
2. After identifying a promising opportunity, they choose a crypto CFD on their trading platform, usually paired with USD.
3. Once selected, the trader initiates their position, implementing stop-loss and take-profit strategies to safeguard the trade's sustainability.
4. Throughout this process, they vigilantly monitor market conditions, adhering strictly to their trading strategy.
5. Upon determining the optimal moment, they close their trade, ensuring consistency in their approach. Finally, they capitalize on profits earned and absorb any incurred losses.
   

Crypto CFDs work through a trader making predictions about the future of a digital currency. In all cases, the trader must put down a small percentage of an asset’s value as collateral (of sorts) for the trade. Despite the restricted selection of trading pairs, there remains ample opportunity for profit. Beginners in CFD trading with cryptocurrencies may find it prudent to focus initially on one or two trading pairs. This approach allows them to grasp the fundamentals and nuances of trading more effectively.

What are the Benefits of Crypto CFDs?

Crypto CFDs provide flexibility, leverage, and the ability to profit from both rising and falling markets, all within a regulated trading environment.

• No Ownership
  When trading crypto CFDs, traders do not own the underlying cryptocurrency itself. Instead, they are speculating on the price movements of the cryptocurrency without needing to physically own it, which can simplify taxation and regulatory considerations.
• Short Selling
  One of the significant advantages of CFD trading is the ability to profit from falling prices by going short. This means traders can speculate on the price of cryptocurrencies decreasing as well as increasing, providing opportunities in both bullish and bearish markets.
• Accessibility and Convenience
  Trading crypto CFDs is typically more accessible than buying actual cryptocurrencies because it doesn't require setting up a digital wallet or dealing with cryptocurrency exchanges. It allows traders to speculate on the price movements of cryptocurrencies through a regulated broker platform.
• Hedging
  Traders can use crypto CFDs to hedge their existing cryptocurrency positions. For example, if a trader holds a long-term position in Bitcoin, they could use Bitcoin CFDs to hedge against short-term downside risks.

How to Get Started Crypto CFD Trading with Markets.com?

1. Open an account with the selected broker and complete the registration process.
2. Verify your identity.
3. Deposit funds into your trading account.
4. Develop a proper trading strategy depending on your goals, risk tolerance, and market analysis.
5. Start placing trades by selecting the cryptocurrency CFDs you want to trade and specify your desired position (long or short).

When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.

Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice. Trading cryptocurrency CFDs and spread bets is restricted for all UK retail clients.