How to trade Crypto CFDs?

How to trade Crypto CFDs?

Cryptocurrencies have been a hot topic lately. This article looks at how you can trade cryptocurrency CFDs on the financial markets. You may have heard that many people have become wealthy by trading cryptocurrencies, but did you know that anyone with a brokerage account can do precisely the same?

Open an account with a broker

To begin with, to transact in cryptocurrency CFDs, you need an account with a broker who offers this service. At present, only a handful of brokers provide cryptocurrency CFDs, and most of them are relatively small companies. If you don’t already have an account with one of these brokers, it might sound like too much effort, but if you’re serious about trading cryptocurrencies, it is worth the effort.

Once you select a broker, you need to fund your account with enough money to trade correctly. As cryptocurrency prices are highly volatile, only risk capital should be used when trading these products.

Choose which crypto you want to trade

The next step is to choose which cryptocurrency or cryptocurrencies you want to trade CFDs on. As mentioned earlier, various brokers offer cryptocurrency CFDs, and they vary in what crypto assets they offer. The most popular crypto pairs for trading are BTC/USD and ETH/BTC. It might seem strange, but one of the best ways to determine which cryptocurrencies you should choose is by considering which ones have a higher market capitalization. You can see the current market cap of various cryptocurrencies here.

While cryptocurrency CFDs are not cheap, they offer significant advantages over buying and storing actual cryptocurrency. The main one is that you don’t own the actual coin/token, so if its value falls dramatically, your loss will be limited to just the amount you paid for the CFD. It makes them a lot safer than actually holding cryptocurrency. However, be aware that the price of a CFD isn’t guaranteed either and will fluctuate in line with its underlying asset.

Anyone who has been trading financial instruments for a while knows many different trading styles, which is also true with cryptocurrencies. CFDs allow you to be very speculative or very conservative. Let’s look at some examples of how you might want to trade cryptocurrency CFDs.

Long term trend

A straightforward way to trade cryptocurrency is on a long term trend basis. It means buying cryptocurrencies in an uptrend and selling them once the price has peaked out and trended downwards. Generally, these trends can take weeks or months to complete, so it needs to be considered for those who only have time available during daytime hours Monday – Friday.

For those who don’t mind having their capital tied up for weeks/months at a time, then another way of trading crypto CFDsis to buy them on margin (using your broker’s leverage facility). If the price goes up, you make money, it goes down, and you lose.

Short term trading

Another way of trading CFDs is to use a more short term approach by buying dips in an uptrend or selling rallies in a downtrend. The following chart should explain how this works:

As for any other financial instrument, there are many different ways you can trade cryptocurrency CFDs, but whatever your strategy may be, only risk what you can afford to lose.

There are many different strategies that traders use when trading on CFDs.

Here are the three most common ones which you can experiment with:

Carry Trading

“Carry” is a return made on investment over time, especially the difference between short-term borrowing and long-term lending rates. It’s achieved by borrowing a currency with a low-interest rate and lending it at a higher interest rate.

Trend Trading

“Trend trading” is one of the most common strategies used by Forex traders and involves trying to identify whether a particular currency is going to go up or down in value. You can then trade accordingly by buying (going long) if you think the currency will go up or selling (going short) if you think it will go down.

Pairs Trading

“Pairs trading” is another common Forex trading strategy that involves buying two different currency pairs hoping that one of them will outperform the other. This strategy can be used when trading CFDs on cryptocurrencies. Still, it’s important to remember that the prices of these currencies can be very volatile, so your profits and losses could be magnified if you’re not careful.

Before you start trading cryptocurrency CFDs with real money, you must practice using demo accounts first to avoid irreparably damaging your account capital from the beginning! Good luck.