Trading cryptocurrencies is a bit confusing for many investors. It’s called CFD trading, and it means you speculate on the market and whether it might rise or fall. You don’t own the digital asset, which means you don’t have to deal with the transactional records of the blockchain. But if you’re interested in online trading is the best platform to consider.
The benefits of trading cryptocurrency include:
While the crypto market is still new, it has experienced some volatility because of the short-term speculation interest. Between October 2017 and 2018, Bitcoin’s price rose to $19,378 and dropped down to $5,851. Other cryptocurrencies have been more stable, but new technology can attract more interest.
However, that volatility is what makes the market exciting. Rapid price movements throughout the day can give you many opportunities. Still, it comes with a bigger risk. Make sure you research the cryptocurrency market and develop a risk-management strategy before doing much else.
The crypto market is usually open to trade 24/7 because there’s no governance. The transactions take place between individuals and on exchanges throughout the world. However, there could be downtime periods when the market adjusts to infrastructural updates.
Liquidity measures how easily and quickly a cryptocurrency is converted to cash without impacting market prices. It’s crucial because it brings faster transaction times, better pricing, and better accuracy.
Generally, the cryptocurrency market is called illiquid because its transactions are dispersed through many exchanges. Overall, smaller trades have a big impact on market prices. That also ties into volatility.
When you trade Bitcoin CFDs, you have better liquidity because it sources the prices from various venues for you. Therefore, your trades could be executed at lower costs and much faster.
Whenever you buy cryptocurrency, you’re purchasing the asset initially and hope it increases in value. However, when you trade the crypto’s price, you benefit from markets that rise and fall. That’s called “going short.”
Generally, CFD trading is called a leveraged product. Therefore, you can open a position on the margin. The deposit you put in is worth a fraction of the trade’s full value. In a sense, you gain more exposure to the cryptocurrency market and only tie up a small sum of capital.
The loss or profit made from the cryptocurrency trades reflects the full value of that position when the point is closed. Overall, margin trading gives you the chance to make hefty profits from smaller investments.
Still, you should be aware that it also amplifies your losses, even more than the initial deposit for that trade. Therefore, you must think about the total value of that leveraged position.
Quickly open an account
If you buy cryptocurrencies traditionally, you must purchase them, store them in a digital wallet, and sell them on an exchange. Therefore, you must create various accounts, which can be time-consuming and restrictive.
However, if you use online trading platforms, you’re not directly on the exchange. The platform exposes you to the market through a specialty broker. Therefore, you only set up one account and can start trading more quickly. In fact, some people can begin trading in about five minutes with online verification and simple forms to fill in.
Buy or trade
Before deciding if you should buy or trade crypto, it’s crucial to understand the differences.
You may want to buy cryptocurrency if you:
- Want full ownership
- Like paying full value upfront
- Wish to gain direct exposure for one exchange
However, it’s wise to trade Bitcoin CFDs if you want to:
- Leverage your position
- Speculate on Bitcoin’s price without owning it
- Gain exposure to many exchanges
- Enjoy tax benefits
Generally, trading platforms have lower capital requirements and no hidden fees. You can withdraw whenever you want and don’t have a maximum limit for the deposit.
With that, you don’t own the cryptocurrency, making it much easier to stay organized.