When trading cryptocurrencies, you make predictions about the bullish or bearish trend of the market without owning the digital currency. This is possible using financial derivative instruments, CFDs. You should always choose the right platforms and make sure you have the right tools for the trade. Do click here for the best Bitcoin to USD and other currencies converter. In this article, we will look at the benefits of trading cryptocurrency.
Although the cryptocurrency market is relatively recent, it has already experienced periods of high volatility, often due to short-term speculative movements. For example, between October 2017 and October 2018, the price of bitcoin rose as high as $ 19378 and then dropped dramatically to $5851. Comparing the price trends of other cryptocurrencies, we can see how these have remained more stable, even if the launch of new technological tools has always attracted the interest of speculators.
Volatility is, in fact, one of the characteristics that make the market more attractive to investors. Rapid intraday price movements offer a range of opportunities for traders to open long and short positions in the markets but, at the same time, amplify the potential risks of the trades. Therefore, if you decide to explore the cryptocurrency market, ensure you have done all the necessary research and developed an effective risk management strategy.
The cryptocurrency market is available 24 hours a day, seven days a week because they don’t have a central body that manages the markets. Transactions with cryptocurrencies can be made between two parties in markets on a global scale. However, downtime may also occur when markets need infrastructure upgrades, known as ‘forks.’
Liquidity is the measure of the speed of converting a cryptocurrency into cash without affecting the market price. It is also important because it provides better prices, improves transaction timing and accuracy to facilitate technical analysis of the markets.
Generally, the crypto market is considered illiquid because of the distribution of transactions across various trading venues, so even small trading operations can significantly impact market prices. This partly explains why cryptocurrency markets are so volatile.
Possibility to Go Long or Short
When you buy a cryptocurrency, you are buying the asset in advance to increase the value. When trading on the price of a cryptocurrency, you are looking to make a profit from both the rising and falling markets. When you open a short position (hence the expressions ‘going short,’ ‘short selling,’ or ‘selling short’), you are trading on the downside price of the chosen market.
Being leveraged products, CFDs allow you to trade on margin, i.e., the deposit of a sum of money that corresponds to a small fraction of the total value of the trade. In other words, with leverage, you get greater exposure to your chosen cryptocurrency market by investing only a small portion of your capital.
The profit or loss you may experience from your cryptocurrency trading operations will reflect the total position value when the market closes, which is why trading on margin offers the possibility of making greater profits through a relatively modest investment. As with profits, however, leverage can also expose you to the risk of amplifying your losses, which may even exceed your initial deposit. For this reason, it is crucial, before undertaking an investment with CFDs, to consider the total cost of the position you intend to open, also considering the leverage effect.
Before starting trading with CFDs, it is also essential to study and apply an effective risk management strategy, with the inclusion of appropriate stops and limits.
Faster Account Opening
When trading cryptocurrencies, you will need to buy or sell them through an exchange, which requires opening an exchange account and depositing cryptocurrency into a digital portfolio. The opening process can be restrictive and time-consuming.
On the other hand, if you choose to trade with cryptocurrencies by opening a CFD account, you will not have to log into the exchange because the platform you select exposes itself to the underlying market on your behalf. You won’t need to set up and manage an exchange account to start trading faster. In fact, after having requested and obtained the opening of an account, you can immediately access the markets and open your first position on cryptocurrencies.
Is it cheaper to buy cryptocurrencies or trade CFDs?
Before choosing whether to buy or trade with cryptocurrency CFDs, it is important to consider the differences and peculiarities of the two methods.
- You want to own the total value of the cryptocurrency
- You want to pay the full value of the asset in advance
- You want direct exposure to an underlying exchange with separate exchange accounts for each market
- You want to wait for an exchange account to open before you can buy or sell a cryptocurrency
- You prefer to have minimum or maximum initial deposits
- You prefer to pay additional fees for deposits or withdrawals
You may be interested in trading cryptocurrencies if …
- You want to trade on the price of a cryptocurrency without owning the value of the underlying asset
- You want more market exposure with leverage so that you only have to pay a fraction of the total trade value upfront
- You want greater exposure to a range of markets with a single account
- You want to trade the markets immediately after opening your account
- You don’t want a maximum deposit limit
- You don’t want to pay any additional fees on deposits or withdrawals
Which cryptocurrency pairs are suitable for beginners to trade?
There is no specific cryptocurrency pair for beginners because each is different, with a range of specific benefits and risks for traders. When choosing the ‘best’ cryptocurrency, you will also need to consider your trading goals and risk appetite. The major pairs are NEO/USD, bitcoin/USD, ether/USD, ripple/USD, stellar/USD, litecoin/USD, and EOS/USD.
Is trading with cryptocurrencies risky?
Because of high volatility, the crypto market is seen as risky. You need to consider your risk appetite and apply a proper risk management plan before trading cryptocurrencies.