Cryptocurrency trading is the act of speculating on cryptocurrency price movements via a CFD trading account, or buying and selling the underlying coins via an exchange.
CFD trading on cryptocurrencies
CFDs trading are derivatives, which enable you to speculate on cryptocurrency price movements without taking ownership of the underlying coins. You can go long (‘buy’) if you think a cryptocurrency will rise in value, or short (‘sell’) if you think it will fall.
Both are leveraged products, meaning you only need to put up a small deposit – known as margin – to gain full exposure to the underlying market. Your profit or loss are still calculated according to the full size of your position, so leverage will magnify both profits and losses.
What’s the difference between a CFD and an ETF?
While there are similarities between CFDs and ETFs, they are quite different. The similarity is that they are both derivatives.
An ETF is a fund which aggregates various financial assets into one tradable instrument, while a CFD is a contract regarding a price-change in a certain asset – meaning in both cases, you don’t actually purchase the underlying assets.
However, while ETFs are composed by financial institutions following a specific market strategy (often used to hedge risk), a CFD is offered by a broker to enable access to private users.
Similar to ETFs, CFD trading can be used to create a portfolio which follows a market strategy, giving the user absolute control over the assets they choose to hold, and enabling them to manage their own risks.
Hence, the great expectations investors and crypto-enthusiasts have towards Bakkt and other future ETFs dealings.
What about CFD trading in crypto?
Cryptocurrencies have also begun to generate a lot of interest as an alternative investment or CFDs.
A large part of this is down to headlines generated by the huge leaps in Bitcoin’s value, as the price of BTC began 2017 worth around $1,000, rocketing to more than $19,000 by December of that year. When prices move quickly, traders pay attention.
This new asset space gained further credibility when established exchanges like the CBOE and CME launched futures contracts in Bitcoin. And now more and more crypto CFD trading platforms are flooding the market.
Many people gain an exposure to cryptocurrencies by simply putting money into them – that is, buying the actual digital currency. There are downsides to this, however. Processing times for buying a cryptocurrency are slower than the instant fills that typify a Forex trade. They are unregulated and there have been scare stories of compromised Bitcoin and Ethereum wallets.
You can easily sidestep all these concerns by trading cryptocurrencies via CFDs. Using CFDs allows very fast transaction times, which is useful for such a volatile market. Admiral Markets UK Ltd is authorised and regulated by the Financial Conduct Authority (FCA), so that our Bitcoin CFD trading is regulated in the same manner as normal FX.
