Overview
Cryptocurrency trading has become one of the most popular investment strategies in recent years, reaping lucrative returns for traders who understand the functioning of this volatile and sometimes controversial digital currency.
Trading of cryptocurrency CFDs, such as Bitcoin CFDs and CFD Ethereum, has become increasingly popular due to the derivative mechanism to trade the markets without having to purchase underlying assets.
That said, CFD trading on the whole can be a more risky investment strategy, though it can be very profitable with the correct training and education.
In this article, we take a deep dive into the world of cryptocurrency CFDs, allowing traders to take full advantage of this lucrative and exciting investment tactic.
Understanding cryptocurrency CFDs
A central authority such as a government does not issue or back cryptocurrencies, making them decentralized. In this case, they are distributed throughout a computer network. However, cryptocurrencies may be purchased and traded on exchanges and held in ‘wallets’.
Only a digital record of ownership can be found on a blockchain for cryptocurrencies. Unlike traditional currencies, cryptocurrencies do not exist in any tangible form.
Sending Bitcoin units to another user’s digital wallet is the most common method of doing so. Until a mining process verifies the transaction and places it on the blockchain, it isn’t deemed final. New cryptocurrency tokens are typically created in this manner as well.
Using contracts for difference (CFDs), you can bet on the price swings of cryptocurrencies without having to hold any of the underlying assets yourself. If you believe a cryptocurrency will rise in value, you can go long (‘buy’) or short (‘sell’).
You just need to put up a little deposit – known as margin – in order to get full exposure to the underlying market when trading CFDs, which are leveraged products. When you use leverage, your profit or loss will be magnified by the amount that you have leveraged your initial investment.
Understanding the value proposition of cryptocurrencies like Bitcoin
The value of Bitcoin is comparable to that of precious metals. Only a limited number of people can benefit from each.
There are many industrial uses for gold, much as there are many financial services applications for Bitcoin’s underpinning blockchain technology. When it comes to retail transactions, Bitcoin’s digital provenance makes it possible.
In other words, a currency like Bitcoin is beneficial if it can reliably retain its relative worth over time as a means of saving money. Similarly, the relatively steady value of commodities and precious metals has led numerous societies throughout history to employ them as payment systems.
The difference between Bitcoin and other cryptocurrencies is that there is no system of middleman banking and no government support for it. The Bitcoin network’s approval of consensus-based transactions is handled via a decentralized network of independent nodes.
Fiat authorities, like governments or central banks, cannot act as a counterparty to deal with risk and compensate lenders when things go poorly in transactions.
As a result of its scarcity, Bitcoin has a high value. Increasing demand for cryptocurrencies has accompanied a decline in available supply. There is a growing demand from investors for access to the profits from Bitcoin that results from trading its finite supply.
The role of the blockchain and cryptocurrency mining
As the name suggests, a blockchain is a decentralized digital ledger where everyone can see what data has been recorded. The transaction history of a cryptocurrency reveals how ownership has changed over time for each unit.
The transactions are recorded in “blocks,” and fresh blocks are added to the chain at the beginning of each new transaction.
Instead of being saved on a single computer, a blockchain file is replicated across a network of computers, making it accessible to anybody on the network.
Having no weak points that can be exploited by hackers or human or software error, it is both transparent and extremely difficult to alter.
The process of Bitcoin mining is the verification of current transactions and the creation of new blocks in the blockchain.
In order to ensure that a transaction can be completed, mining computers select pending transactions from a pool and perform the necessary checks.
This is done by comparing the transaction information to the blockchain’s transaction history. Once again, the sender’s private key is used to verify the transfer of funds was authorized.
Mining computers seek to find a solution to a difficult algorithm in order to generate the cryptographic link to the previous block by compiling legitimate transactions.
As soon as a machine is able to create the link, it updates its copy of the blockchain file and sends the new block to everyone else.
Much of the scarcity value of cryptocurrencies like Bitcoin is linked to this mining function, whereby the ability to unlock and hold new Bitcoins affects their supply, and allows miners to store them for future use or to sell them immediately, affecting the price of Bitcoins.
But this value is also linked to the way that Bitcoin is used, and the intrinsic demand for its ability to be used as a unit of transaction. This spikes the demand for Bitcoin and other cryptocurrencies, as more people today begin to use digital currencies as a means of paying for goods and services.
Trading cryptocurrencies on an exchange vs as CFDs
Exchange trading of cryptocurrencies
In order to trade cryptocurrencies on a crypto exchange, you must have a working grasp of the underlying technology.
As already noted, cryptocurrencies, which are digital currencies based on public blockchains, tend to be decentralized and unmanaged. As a result, traders are responsible for securing their Bitcoin purchases and storage, which can be difficult for first-time investors.
Opening an account and going through the KYC process at a cryptocurrency exchange is the first step in getting started trading cryptocurrencies.
Following the acquisition of digital currencies and tokens, the crypto exchange gives you a hot wallet for storing them.
If the exchange is hacked, you could lose all of your tokens. Your tokens are safer in a personal crypto wallet, so it is important to set one up immediately. It’s up to you whether or not you want to use the internet, mobile, hardware, or even a paper wallet.
When trading cryptocurrencies, it’s crucial to keep an eye on the factors that affect the price movement. A cryptocurrency’s tokenomics, coin supply, liquidity, utility, market perception, news, and macro events all have an impact on its market value.
If you’re a novice trader, you’ll face unique hurdles while dealing with cryptocurrency on an exchange. One of the most pressing issues is the possibility of losing your money if you lose your private keys, for example.
Also, cryptocurrency exchanges are vulnerable to hacking and regulations can change quickly, so exchanges may freeze cash or be forced to stop operations without notice for a period of time. Many traders prefer trading Bitcoin CFDs over owning cryptocurrencies because of these difficulties.
Trading cryptocurrencies as CFDs
CFDs allow traders to bet on the price swings of cryptocurrencies without owning the underlying tokens.
For traders who don’t want to worry about the technicalities of purchasing and keeping cryptocurrency but yet want to profit from price fluctuations, cryptocurrency CFDs are a popular choice.
There is no need to register an account with a cryptocurrency exchange or set up a cryptocurrency wallet for storing cryptocurrency when trading crypto CFDs.
Online brokerages provide crypto CFD trading as an alternative. As a result, you don’t have to worry about crypto rules when you purchase and sell crypto CFDs because they are regulated financial instruments.
Traders can open long or short positions with tiny sums that can be leveraged, and earn or lose from the price difference between the opening and closing positions using cryptocurrency CFDs, like a traditional CFD.
Leverage allows traders to get a larger share of the crypto market’s action with a smaller initial investment. With leverage, tiny investments can yield big returns, but losses can be compounded when the margin is included.
Because CFDs do not expire like futures contracts, traders can open positions without having to worry about rolling over contracts on a regular basis.
The markets in which cryptocurrency CFDs operate are distinct from those in which regular CFDs operate, and as a result, they should be given adequate attention. When it comes to trading in the cryptocurrency market, the odds are stacked against you.
Research the cryptocurrency you’re considering investing in thoroughly and devise a risk management strategy that matches your investment objectives before you make a decision to invest.
Some advantages of trading cryptocurrency CFDs
Faster profits are possible
When trading crypto CFDs, you do not actually purchase or sell digital assets; all your transactions are executed in a split second on the broker’s trading platform. This affords traders greater freedom and allows them to react rapidly to market moves.
Broker Support
A good broker will offer reliable and responsive customer support. If you’re having trouble opening an account, making a trade, or dealing with other technical concerns, you’ll want to contact customer service for assistance.
When it comes to CFD brokers, customer service is available by email, phone, and live chat, but most cryptocurrency exchanges leave clients to deal with issues on their own, as it is an arena defined by greater investor independence.
Access to brokers’ trading features
With a typical broker, you have access to a wide range of technology and risk management tools, including stop loss and take profit tools, while trading CFDs for cryptocurrency.
With the famously high volatility of the cryptocurrency market, they may be useful and protect you from catastrophic losses. In addition, brokers offer powerful charting tools and analytical support to help you make better-investing decisions and increase your overall performance.
And some disadvantages…
CFD trading can be more pricey
As a result of the disparity between the purchase and sale prices, CFD crypto trading has a cost associated with it.
Regardless of the outcome of the trade, you will incur losses when you open a crypto CFD position at the outset. When an underlying asset is less liquid and more risky, you’ll pay a larger spread.
Besides this, all CFD brokers impose a fee for keeping a CFD position open for more than 24 hours. Because of the extreme volatility of Bitcoin and other cryptocurrencies, these fees are calculated as a percentage of the LIBOR rate.
Therefore, the predicted price movement must be large enough to pay the trading fees and generate profit.
The dangers of volatility
Bitcoin and the CFDs connected to it are exceedingly volatile, and so are their values. Because of unforeseen developments or shifts in market mood, they are susceptible to rapid price fluctuations. One day recently saw the value of several cryptocurrencies fall by more than 30%.
Best cryptocurrency CFDs to trade for beginners
Binance Coin
Using the BNB symbol, Binance Coin is the digital currency issued by Binance. Initially, Binance currency ran on the Ethereum blockchain with the ERC 20 standard, but it has now become the native token of the Binance chain.
Originally designed to facilitate trading on Binance’s exchange platform, Binance Coin has grown significantly since its inception in 2017.
It can now be used for trading, processing payments, and even making trip reservations. This cryptocurrency can also be traded and swapped for other types of digital currency.
In order to spread the use of the crypto token, several partnerships have lent their assistance. There is an agreement with Asia’s most popular high-end live video streaming platform, Uplive, which has a 20 million-strong user base, to sell virtual presents for BNB tokens.
By February 1, 2025, Binance Coin climbed from a price of $0.10 in 2017 to $377, a gain of about 377,000 percent.
Polkadot
Tokens and data can be transferred across public and private blockchains using Polkadot’s decentralized network protocol. Gavin Wood, a co-founder of Ethereum, launched the network in 2017.
Polkadot was co-founded by Robert Habermeier and Peter Czaban, with whom Wood worked. In the Poloniex network, the native Polkadot cryptocurrency token (DOT) is used for staking, bonding, and governance.
A growing number of developers are switching to Polkadot from other protocols that don’t provide the same level of functionality across blockchains as Polkadot does.
As Polkadot’s potential for wide adoption in DeFi applications and NFT auctions has made DOT trading more popular among investors, the DOT token has grown to be one of the largest cryptocurrencies by market capitalization.
Solana
Solana’s unique hybrid proof-of-stake and proof-of-history processes allow it to process transactions rapidly and securely for DeFi applications, DApps, and smart contracts. The platform is powered by SOL, the native coin of Solana.
Solana is often regarded as Ethereum’s main opponent. Open interest is the most important statistic in derivatives contracts, and Solana presently holds third place. Despite its earlier price value plunge, open futures interest in the stock has been steady.
Cardano
Even though it arrived on the crypto scene later, Cardano made a name for itself by adopting proof-of-stake validation early on.
Bitcoin-like platforms have a competitive, problem-solving aspect to transaction verification that slows down the process and has a negative impact on the environment. Cardano, like Ethereum, uses its native coin, ADA, to power smart contracts and decentralized applications.
Cardano’s recent milestones appear to be the driving force behind the cryptocurrency’s recent surge in value. With no downtime in over 1,500 days, ADA-USD has passed the 20 million transaction mark. More than one million digital wallets around the world currently hold Cardano.
In all cases, these accomplishments have helped the price rebound from its recent decline.
Ethereum
Ethereum is the second-largest digital currency after Bitcoin and represents about 20 percent of the total cryptocurrency market.
Ethereum is not a cryptocurrency — it’s a global computer for running decentralized apps (dApps) (dApps).
Ether (ETH) is the money that runs the Ethereum network, and it’s the required form of payment for running your app or executing your transaction on the highly-desired Ethereum blockchain.
The Ethereum network is open to any developer who wants to create a blockchain-based application.
When it comes to Ethereum, it’s most known for its Ether token and other digital currency tokens, but its technology is also being used in a wide range of industries from insurance to healthcare.
Most blockchain apps are built on Ethereum technology. A large number of people believe that blockchain technology will play a significant role in the future of finance and other industries, making Ethereum technology an attractive investment option.
Bitcoin
Created in 2008, Bitcoin is the most popular cryptocurrency and the largest by market capitalization.
The original intent of Blockchain was to disrupt the traditional global payment networks by enabling peer-to-peer digital payments that do not require a trusted third party, such as a financial institution.
Bitcoin is probably one of the most liquid investment assets due to the worldwide emergence of trading platforms, exchanges and online brokerages.
You can easily swap Bitcoin for cash or valuables like gold instantaneously with exceptionally minimal fees. The high liquidity associated with Bitcoin makes it a great investment vessel if you’re looking for short-term profit.
While Bitcoin is considered potentially more risky than its other crypto peers due to its inherent volatility, this intrinsic price fluctuation is what makes Bitcoin a good option for taking advantage of upcoming price changes.
That said, as a beginner foraying into the world of crypto CFD investments, it is best to keep Bitcoin at about 5% of your overall crypto portfolio for now, keeping other safe haven cryptos in your corner and taking advantage of price changes to Bitcoin when they profit you to do so.
Lastly, trading CFDs on Bitcoin specifically can be a safer option than through an exchange, due to the ability to make quick market entrances and exits which CFDs provide.
Conclusion
Trading crypto CFDs are an excellent way to take advantage of the lucrative opportunities inherent in crypto trading without having to own actual digital coins.
Added to this, crypto CFD trading can be easily conducted through an online broker, which provides customer support and a wealth of tools and features to aid beginner traders on their investment journey.
Frequently Asked Questions
What are CFDs?
Without owning the underlying asset, CFDs allow traders and investors to profit from price volatility. In order to calculate the value of a CFD contract, only the price movement between the transaction entry and exit is taken into account.
This is achieved by setting up a contract between client and broker without the use of any actual stocks forex, commodity, or futures exchange. Trading CFDs offers several big advantages that have made them exceedingly popular in recent decades.
What are the benefits of trading crypto CFDs?
Using contracts for difference (CFDs), you can bet on the price swings of cryptocurrencies without having to hold any of the underlying assets yourself. If you believe a cryptocurrency will rise in value, you can go long (‘buy’) or short (‘sell’).
You just need to put up a little deposit – known as margin – in order to get full exposure to the underlying market when trading CFDs, which are leveraged products. When you use leverage, your profit or loss will be magnified by the amount that you have leveraged your initial investment.
What are the risks associated with trading crypto CFDs?
Cryptocurrencies and the CFDs connected to it are exceedingly volatile, and so are their values. Because of unforeseen developments or shifts in market mood, they are susceptible to rapid price fluctuations. One day recently saw the value of several cryptocurrencies fall by more than 30%.
How do I trade crypto CFDs?
In order to trade cryptocurrency CFDs, you will need to open a trading account with a broker that offers this facility.
To this end, it is very important to find a broker which will provide you with regulatory security, excellent customer support, and a good range of trading tools and features.
Which are the best crypto CFDs to trade?
For beginners entering the crypto CFD market, some of the best options include the following:
- Binance Coin
- Polkadot
- Solana
- Cardano
- Ethereum
- Bitcoin
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