If you are familiar with the investing world, you might know what CFD stands for.
But for the people that don’t know, CFD is short for Contracts for Differences.
A CFD style of investing is a good way to invest and make a lot of money while you don’t have much to put in initially; however, do know that CFDs work with margins that amplify your profits later; they also magnify your losses. With a CFD, traditionally, an investor is only required to put 5% down of the investment he wants to make. The investor is predicting if the stock either rises or drops for a certain amount of time and the difference between the day of the contract and the due date, the price difference being what the investor receives.
An example: Today, stock trades at 100$. John closes a CFD with a stockbroker, and John says, “in 5 days, that stock will be trading at around 120$”. Surely enough, John was right: 5 days later, the stock was trading at 125$. He closed a CFD for ten shares, so he put in 1000$. The difference between the closing date of the trading stock and the due date is 25$, so 25$x10shares= John receives a 250$ profit.
How is Bitcoin CFD different from regular CFD stocks?
We are not getting away from cryptocurrencies, the global adaptation of cryptocurrencies. How is Bitcoin CFD trading different from regular trading or stocks? There are some differences between the 2.
With regular CFDs on the stock market, you might pay a lot more in transaction costs and fees than on cryptocurrency platforms. Many people will be sold on those lower costs, but they are more volatile than regular stock. The market is open 24/7 in the cryptocurrency universe, unlike with stocks, where there are market hours in place. This can make things tricky or easier depending on what you are doing.
Where can you trade Bitcoin CFD?
Well, it’s hard to find a mainstream platform that offers CFD trading with the risks involved; brokers try to stay away from CFD because if an investor takes out a CFD contract and loses the contract (predicted wrong), then the investor is required to pay back the margin he owns to the broker. It’s a risk for the broker because what if the investor doesn’t pay back? Then the broker must start an entire legal battle that can take months or years.
As the adaptation of cryptocurrencies is happening, more and more platforms are starting to offer this. Popular places like Ava offer now trading bitcoin cfd in Australia with AvaTrade.
The risks of CFD trading
Not all CFD trades automatically have a “margin” multiplier, but a lot of them do.
This means the broker only requires you to put 5% down of the total amount you want to invest. If you’re going to invest 100$, you’ll only have to pay 5% down, and if you predicted the prices correctly, you wouldn’t have to pay the other outstanding 95$. If you lose, you’ll have to pay the difference + the amount of the margin multiplier so that debt can set in very quickly with this style of trading!
Again in the market of cryptocurrency, things are highly volatile. The market is open 24/7, so a lot can happen overnight. So this is something you should keep in mind before embarking on this journey of CFD trading in crypto.
The benefits of CFD trading
Risk/reward ratio. The hands-down biggest benefit of Trading is you can make money when a stock or crypto is moving. Nothing else offers this.
When using the so-called margin multiplier, you can make a lot of debt but also bag a lot of profit with little to no upfront investment!
Another benefit is that CFDs are fast; you can get in and out of a position within days or weeks.
Unlike other forms of trading where you have to hold on for a long time to see some return.
Image by Lorenzo Cafaro from Pixabay