Last Updated on January 22, 2021 by harsh vasistha
If you are a beginner or even a pro-crypto trader and wanted to exploit the world of (Contract for difference) CFD trading or precisely Crypto CFD trading? Then read the ‘CFD trading guide for beginners and what is Crypto CFD trading’? Also, get an idea about the best crypto CFD trading platforms (brokers) available online?
If the answer is yes, then this article is tailor-made for you to get a broad perspective of CFD trading precisely What is Crypto CFD Trading? How does CFD trading work? CFD Trading features, technicalities, advantages, and disadvantages, and of course, at last, get to know the best and safest crypto CFD brokers available worldwide for crypto CFD trading in 2021.
Let’s dive into the CFD Trading guide!
What is CFD (Contract for differences) trading?
CFD, which stands for “Contract for Differences”, is a flexible alternative for traditional trading that lets you trade in the market without owning the exchanged asset.
In trading CFD, you speculate on the rising and falling prices of global financial markets such as stock shares, foreign exchange, treasuries, and cryptocurrencies.
And if your speculation is true, you earn a profit.
In CFD trading, your profit or loss depends on your prediction of the price movement; and the price movement itself. For example, you predict that the price will go up; thus, you buy the asset. If the price goes up, you will earn a profit. Otherwise, you would bear a loss.
A CFD contract is independent of the underlying asset’s value; only the price difference from the point contract starts to the point it closes is what determines the profit or loss.
CFD trading guide – How CFD trading works?
You can easily trade CFD by following these steps:
Open your CFD trading account – Keep in mind, all CFD trading platforms offer a demo account i.e. you can try the CFD broker’s platform without investing a single penny.
Instead, you can learn the basics of CFD trading and get used to the CFD trading broker interface with a significant amount of demo balance (minimum $10000).
Use this demo account to test your trading knowledge, and find techniques and tools that work best for you.
Choose your trading asset – You can trade stock shares, foreign exchange, treasuries such as gold and silver, and of course, crypto on CFD.
Further, in this CFD Trading guide, we will mention the benefits of trading cryptocurrencies on CFD’s and why they are better than trading other assets.
Speculate – Now, it is time to use the tools and techniques alongside your trading knowledge to decide whether you want to invest in the price going up or going down.
There are more official terms for these conditions: Go Long and Go Short. We will discuss them in detail.
Choose the right CFD trading broker – Depending on the tools and techniques you prefer, you should use a proper CFD trading program.
MT platforms are popular choices, especially MetaTrader 4 and MetaTrader 5. There are also mobile apps that let you trade CFD on the go.
Go Long and Go Short in CFD
When you decide to trade on CFD, you would encounter these two expressions a lot: Go Long and Go Short.
Go Long is when you think that the price of the underlying asset will increase, and thus, you decide to buy (go long) it.
Go Short is the opposite; you forecast that the price will decrease. Therefore, you sell (go short) the underlying asset.
In both cases, if you are accurate about your speculation, you will gain benefit in the amount of the price change.
For example, you speculate that the price will go long, and later it goes up, then the more the price goes up, the more you will benefit.
CFD Margin and Leverage trading – Guide to Trading CFD
The ability to trade on margin and use leverage is one of the central attributes of CFD trading. But what is trading on margin?
Margin trading enables you to get high market exposure by merely depositing a small fraction of the trade value.
Let me clarify by an example: suppose the margin requirement for a market is 10%, and the total value of the trade is $2,000. Then, you would only need 10% of $2,000, which is $200, to open the position.
Even though you have put $200 on the trade, it is like you have invested $2,000. Your profit and loss will also be according to the $2,000 trade value.
Margin trading is quite useful; you can trade high amounts by just putting a small fraction of your total capital. Then you can use your remaining capital to do more trades.
Margin trading has promising benefits, but also high risks. You can magnify your returns on margin trading if the market goes as you have expected.
However, if the market goes opposite to what you predicted, you will also have magnified losses.
Thus, CFD trading is no anomaly. There is always a risk and reward associated with almost every aspect of our life. We just need to grasp how to maintain the right balance?.
The costs of CFDs
Generally, there are three types of costs associated with CFD trades:
- Commission: Commission is dependent on a CFD trading platform and its rules. Usually, there is no commission for trading forex and commodities. However, there may be a small commission of $0.01 per share for trading stocks.
- Financing Cost: A financing cost happens in certain situations. For example, it may apply if you take a position for more than one night. The reason behind this cost is that overnight positions are considered an investment where the broker has lent you money; thus, a financing interest charge will be applied.
- Spread: Spread is simply the difference between the purchasing price of a CFD and the price you can sell it at.
Advantages of CFD trading – Crypto trading guide
Higher Leverage in Trades
Opposite to the traditional investments where you had to put the exact amount of trade value, in CFD, you just need to put the required amount of margin.
A margin can be as low as 3% and as high as 50%. But in all cases, you would have a large portion of your capital with yourself that you can use to open other positions.
The high leverage available in CFD does create the potential for greater profits, but if things go bad, then you will also have magnified losses. A good way to avoid enormous losses is to have a stop-loss limit and a limited trade size.
Huge Range of Markets
Is it commodities, forex, indices, or crypto that interest you? No matter what market you want to trade, CFD lets you do it.
Furthermore, you will be able to trade in all these markets (more than 17,000) from one platform.
You won’t have to change the platform while changing your market, everything can be done using one single platform.
While certain markets don’t allow for going short, the CFD market does.
In CFD trading, all it matters is the difference between the opening and closing price of a position and your speculation.
Thus, you can go short on a market heading down and earn a profit, as well as go long on markets heading up.
Like many traditional brokers, CFD also offers order types like stops, limits, and contingent orders. Contingent orders are those that their execution is bound to the execution of another order.
In other words, a contingent order is applied when a specified event happens. For example, you want to close a deal when the price reaches a specific value; this is a contingent order.
The CFD market does not establish any limitations like a minimum of capital to day trade, or a limited number of trades per day.
The flexibility and affordability of CFD markets are one good reason for their popularity. For example, in most CFD markets, the minimum deposit for opening an account is as low as $1,000.
No Expiration Date
Don’t want to be hastened while trading? CFD trading lets you take a long-term approach to your investment and sell whenever you think the time is right. In short, there is no expiration date in CFD.
Disadvantages of CFD trading – Crypto trading guide for beginners
At the top of the list, we have leverage. How paradoxical, the biggest advantage of CFD trading is also its biggest disadvantage.
As mentioned above, a favorable direction can result in magnified profits; however, a movement against your speculation can also generate a magnified loss.
Therefore, make sure to avoid unnecessary risks and implement a slow but steady approach to investing.
While spreads are not considered as much of a worry due to their small amounts, they can prove otherwise.
For one thing, the fact that spread should be paid on entries and exits removes the possibility to profit from small favorable moves.
An unfortunate fact about CFD is that it is not regulated. A CFD broker’s reliability is not based on government standing; instead, the reputation, ranking, and financial situation of a CFD determine its credibility.
That is why you need to study a broker’s background before investing. And in fact, that is why we dedicated this article to create a list of the best crypto CFD trading platforms.
CFDs carry a high level of risk as the prices may rapidly move against you. This fast-moving market demands close monitoring and core knowledge of CFD trading.
Also, since CFD is a fairly cheap way to access global markets, a user may quickly slip into the tendency to overtrade. But it is necessary to constrain this tendency and remember that this could ruin your financial life and aim for a more cautious approach.
What is crypto CFD Trading?
Crypto CFD Trading is the act of speculating on the price movement of cryptocurrencies.
Just like other assets, you can predict whether a particular cryptocurrency (Bitcoin, Ethereum, Litecoin, Ripple) price would go up or down, and accordingly buy (go long) or sell (go short) the chosen cryptocurrency.
The concept is exactly the same as other assets on CFD: you just speculate on price movement without taking ownership of the underlying cryptocurrency and earn a profit if your prediction comes true.
Benefits of Crypto CFD Trading
The cryptocurrency market has relatively high volatility that makes it a good platform for CFD trading.
AS we all know volatility is a crypto trader dream.
That creates a potential opportunity for bright traders with good market analysis to earn unusual profits.
Because there is no centralized governance of the cryptocurrency market, it is usually available to trade 24/7.
There may be few periods of downtime only when the market is adjusting to infrastructural updates, but other than that, the market will always be available.
Go Short as well as Long
You don’t need to speculate only when the market is heading up; if you predict the market is heading down, then go short and profit even when the market is falling.
Best Crypto CFD Brokers 2021
As mentioned above, an adverse fact about CFD brokers is that they are not regulated. So, the only way to find a credible CFD broker is by analyzing its reputation, ranking, and financial situation.
But you need not worry, we have done the hard part (research & analyze) for you and constructed the list of best Crypto CFD trading Brokers worldwide.
Note – Not every Crypto CFD broker operates in every country, so we have specifically mentioned the country where a particular CFD broker provides services or not.
Here is our list of top crypto CFD Brokers in 2021:
eToro is a leading CFD and social trading platform, and the overall best crypto CFD broker in 2021. With more than 6 million users from over 145 countries, this broker is one of the most popular and most credible CFD trading platforms worldwide.
eToro offers CFD markets for 12 of the cryptocurrencies, including Bitcoin, Ethereum, XRP, Stellar, NEO, Ethereum Classic, Dash, and Litecoin.
The minimum deposit for funding an account in eToro varies from $50 to $200. Creating an account in eToro is seamless and will take no more than 5 minutes.
eToro also offers free stock and ETF trading.
E-toro is available for Indian, European and US citizens.
Note – We will analyze and breakdown each CFD broker features comprehensively with pros and cons in a series of upcoming articles
Note – eToro AUS Capital Pty Ltd, ABN 66 612 791 803 AFSL 491139. CFDs are highly leveraged and risky, and may not be suitable for all investors. You may lose more than your initial investment.
Fortrade is a leading international broker that offers two trading platforms to trade forex and CFDs. It is a legitimate broker and is FCA and ASIC regulated. There is no commission or hidden fees while trading in Fortrade.
Fortrade supports many cryptocurrencies, including bitcoin, ethereum, litecoin, and dash. It also has an intuitive trading platform that makes trading easy, fast, and friendly for everyone, even beginners.
The minimum deposit for starting an account in Fortrade is $100. This broker accepts traders from more than 150 countries and also offers Islamic accounts for Muslim traders.
AvaTrade is a globally trusted and leading CFD and FX trading platform, well-known for its vast trading options and strong integration with different platforms (especially MT4). This company is headquartered in Ireland and, as of now, has more than 200,000 active users.
AvaTrade supports more than a dozen cryptocurrencies, including Bitcoin, Ethereum, Litecoin, Bitcoin Cash, and Ripple. With a minimum deposit of $100 and a leverage up to 1:20, AvaTrade makes it easy for everyone to start trading right now.
CFD Trading FAQs
Which countries allows Crypto CFD trading?
CFD trading is not allowed in the U.S., Hong Kong, and some other countries due to government regulations. But apart from these, many advanced countries like the United Kingdom, Germany, Switzerland, Singapore, Spain, France, South Africa, Canada, New Zealand, Hong Kong, Sweden, Norway, Italy, Thailand, Belgium, Denmark, Turkey, India, and the Netherlands allow for CFD trading.
Why Is CFD Trading Illegal In The U.S.?
CFDs are part of Over-the-counter (OTC) products, which means they are not regulated. Also, the leverage in CFDs allow for bigger losses; that is why The Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) hinder U.S. citizens from trading CFDs.
Can I Make A Living Trading CFDs?
Yes, you can make a living and even get filthy rich trading CFDs, but only if you know how to do it. However, if you don’t know how to trade CFDs, and you still trade them, you may end up losing all your money.
Is Trading CFD Risky?
Absolutely. In general, 70 to 90 percent of retail traders lose their money while trading CFD. However, applying a good strategy, limiting the trade size, and adding a stop-loss limit can significantly reduce the risk.
Note – CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76.4% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.