Looking To Trade Cryptocurrency CFDs? Here’s What You Need To Know.
The blockchain is here to stay and cryptocurrency is becoming a hot asset to trade and HODL. If you want to HODL, you buy and that’s about it. You’re done. All that’s left to do is keep your precious coins in a secure wallet – preferably offline – and hope that price shoots higher and higher. But for some of us simply buying and storing cryptocurrency is too boring, so we want to take a more proactive approach: we want to trade crypto on a daily basis. Buying cryptocurrency at an exchange was already covered in a previous article, so today we will be focusing on trading CFD on cryptocurrencies using brokers.
Trading Cryptocurrency With CFD Brokers
Investing is risky! Ok, you got that? Fine, now assuming you’re an adult and want to make money with Bitcoin and altcoins, you must know there are two ways: buy and hold until you are a millionaire or trade CFD on cryptocurrency. The first method requires a crypto exchange account and the second requires a broker that allows trading Contracts For Difference (aka CFD) on cryptocurrency. Now let’s take a bit of time to see what these brokers really are:
Crypto CFD Brokers – A Simple Explanation
A broker is a general and loosely used term for a venue where people can trade and possibly profit from the movement of underlying assets. In other words, the trader will not physically buy the asset he/she is trading but rather will try to profit from its price fluctuation. An even simpler explanation will need an example and we have plenty of those: you buy a Contract For Difference on Bitcoin when its price is 100 bucks (hey, it’s my example so I get to decide Bitcoin’s price) and when it gets to 150 bucks, you sell it so you get back your investment plus an extra 50 bucks. Ka-Ching! Here’s some Profit!
Keep in mind that everything is done using fiat money (USD, EUR, etc.). As opposed to crypto exchanges, with crypto brokers, you never, ever, EVER own the coin. You simply speculate on its price movement and you cannot dispose of the crypto you are trading (other than deciding when to open and close the trades).
In exchange for the service provided, CFD brokers charge a spread but usually, there are no other commissions or fees for trading. Sometimes these brokers also charge a fee for withdrawals and deposits. And speaking of deposits and withdrawals: most crypto CFD brokers will allow only fiat money transactions (USD, EUR, GBP, etc.) but there are a few that allow crypto deposits/withdrawals as well. However, there are very few brokers in the latter category.
The Rise Of Crypto CFD Brokers And The Risks Of Using Them
To better understand Crypto Brokers and some of the risks associated with them, we must go back a few years to the Binary Options era. Don’t worry, we will not linger long there. Around 2016 – 2017, binary options trading was at its peak, with new brokers hitting the scene literally every day on top of the hundreds of brokers already in business. In this pile of brokers there were tons of scammers that were doing everything in their power to get their hands on clients’ money and on many occasions, they succeeded because people didn’t pay much attention to the minor and insignificant details like “Is this broker regulated?” or even “What’s the name and address of the company?”
Come 2018, Binary Options started to fade away, swept under the rug by new ESMA regulations. Binary trading was banned! But what about all those hundreds of BO brokers? What should they do? You might know the answer but I’ll give it to you anyway: switch to the new way of trading – Contracts For Difference (CFD) and the new hot asset – Cryptocurrency. So now, we have lots of the old scammers re-branded as CFD brokers, with a bit more professional looking website and a bit more advanced trading platform. Same broker, with a fresh coat of paint.
I believe that trading with one of these re-branded brokers is the biggest risk of Crypto CFD trading, apart obviously from the inherent risk of trading and speculating on the financial markets. I cannot stress enough the importance of reading a review before investing money with a certain broker. Don’t get me wrong, not all CFD crypto brokers are scammers – not at all – but there are quite a few bad apples and you don’t want to eat those, trust me.
Keep An Eye On Your Money. Scammers Are Doing The Same!
Crypto is a hot asset despite the fact that the general price has gone down, so there is high-profit potential and whenever there is that kind of potential, scammers will try to get a piece of the pie. There are plenty of well-respected and highly regulated CFD brokers that offer cryptocurrency trading so there’s absolutely no reason for you to use the first one that pops up. All you have to do is read our crypto CFD broker reviews and make an educated choice.