Are Crypto CFDs worth to trade?

Cryptocurrency CFDs are quite popular with the community. Their ability to provide large profits within just a single day is extremely attractive to investors, hence we have nearly every Forex or CFD broker scrambling to put them on offer. But is it actually better to trade with CFDs or should traders just go for cryptocurrencies themselves? Well, first the difference between them needs to be mentioned.

Difference between cryptos and
crypto CFDs

A CFD is a Contract for Difference. It is not
the real thing. For example, if somebody buys $100 worth of a Bitcoin CFD, they
don’t actually own any Bitcoin. They just own a contract that says they bought
it at a certain price point. They can then trade this contract once the prices
go up and make a profit. This process doesn’t require a wallet, therefore its a
bit more popular with the less tech-savvy investors.

Why are CFDs better?

Every broker that offers crypto CFDs provides
traders with margin trading opportunities. Margin trading means to leverage and
that’s something people can’t pass on with a volatile market like cryptos. Leverage is
pretty popular, but for clarity’s sake, here’s a small explanation. If the
company offers 1:10 leverage, then a person, who enters a $100 trade, is
actually trading with $1,000. It’s the amount for the trade, multiplied by the
leverage. Leverage usually provides more profits, but it can also lead to more
losses. Because of the leverage CFD brokers usually require larger initial
deposits.

In fact, the website InsideBitcoins’ has made
a detailed comparison of CFD brokers and Crypto exchanges, there is a large
difference. InsideBitcoins found out that most brokers require deposits of more
than $200, while Crypto exchanges can be accessed with less than $50 with only
a few exceptions. The thorough guide on how purchases on both platforms are
made can be found here. The differences are varied in
terms of transactions, but what’s surprising is the disproportionate
requirements for initial deposits. Brokers that offer leverage should require
their customers to deposit less, while the case is the complete opposite.

Unfortunately, that is where the advantages of
CFDs end and the disadvantages begin.

Why CFDs are inferior

One of the primary reasons why people avoid
crypto CFDs is the small window for trades. CFD trades have deadlines, and once
reached, they close automatically, even if the trader is at a loss. Therefore,
the constant updating of the deadline is required, which will warrant a few
fees. While owning cryptos does not require any time restriction, traders can
hold on to their assets for infinity.

Furthermore, the whole essence of CFD trading
is a disadvantage with cryptos. Margin trading itself is used in markets with
low volatility as there is space to maneuver for the traders and exit trades
while it’s possible. With the crypto market, you don’t get a “calm day”. Assets
can grow or fall by as much as 10% within hours, which immediately leads to
positions being closed due to Margin calls or traders unable to take profits
before a fall after a quick spike.

The bottom line

It’s very hard to tell how exactly these two
trading strategies compare to each other on a global scale as the superiorities
are extremely subjective. A trader would want to go for CFDs as they’re not
hoping for gains in the future, they’re playing the short game. While
investors, who are expecting massive gains in months or even years, go for
crypto exchanges, where they purchase coins and store them on wallets. Same can
be done with CFDs, but it will warrant thousands in fees.