Bitcoin CFD Explained

Emerging as the first-ever cryptocurrency, bitcoin is the focus of all crypto-enthusiasts, especially due to its growth over the last few years, with its capital encompassing over 60% of the total market share. Due to its promising growth and continuous rise in investment, crypto-traders have always focused on this digital currency over any other.

While there are many methods of crypto-trading, Contract for Difference (CFD) is one popular method among traders. CFD trading does not even require opening of account for trading. Sounds cool, right? But before going through the list of reasons for why CFD is a good trading method, let’s first learn about what CFD trading is and how bitcoin can be traded using this method.

What is CFD Trading?

Contract for Difference (CFD) is a trading method that banks on the change in the price of the trading currency. It can be a forex pair, stock or a cryptocurrency. CFD is a contract between two parties, a trader and a broker, based on the change in price of the trading asset. The two parties in the contract are required to exchange the difference in the price of the asset between the time for which the contract has been set.

In CFD trading, the trader gets to speculate on the value of the asset, without investing the value of the asset. This means, CFD trading allows leveraging which requires the trader to deposit only a small amount to enter in a bigger trade. The leverage can multiple the profits as well as losses.

CFD trading involves long or short positions. Taking a long position means the trader expects the value of the trading asset to increase in the future. On the other hand, a short position is when the trader expects a decrease in the price of the asset in future.

Bitcoin CFD Trading

In the case of bitcoin, it’s no different. When a trader expects the price of bitcoin to increase in future, they open a long position- and short position if they expect the price to drop. The expectation is based on research that involves observing performance of the coin in past months/years, any important news regarding the coin and several other factors. Bitcoin CFD trading involves trade of bitcoin against any other digital asset or fiat currency. While the idea of opening a trade with a small deposit, also called ‘margin’, is appealing, it should be noted that it multiples the losses as well. This is why CFD requires good research and risk management skills. Experienced traders with years of experience under their belt, usually know the important points to observe before entering this trade. For a newbie in the world of cryptocurrency, it is important that they take help of the best forex brokers that can guide and help them make the trade.

Ending remarks

If you’re looking to step into the world of crypto-trading without having to risk huge investment, CFD trading is the right option for you, as it allows lower margin deposit than a future trade. Moreover, you do not need to open a digital wallet either. But, considering the risk involved, it’s best to search for australian forex brokers before making the trade.