Cryptocurrency Purchase Vs. CFD Trading
Cryptocurrencies and Contract for Difference (CFD) are two of the most potent financial instruments that have ventured impressive profits to investors worldwide. While trading cryptocurrencies, traders have to make a choice between the both i.e. either to conduct the regular purchase of cryptocurrencies or to opt for CFDs based on the crypto-market. Even though the dynamics of both the options is more or less just the same, yet they have to be utilized separately based on your preferences and the movement of the market.
The Difference Between Cryptocurrency Purchase & CFD Trading
To understand which option is better over the other, you need to focus on the key differences that they have based in terms of their position, the value of underlying assets and scope of profits. Let’s have an in-depth look at the working of cryptocurrency purchase and the impact that it can bring to your investment portfolio.
Selling or purchasing cryptocurrencies deals with long-term positions, and this happens for a reason. The ‘Buy and Hold’ strategy is one of the common methods practiced by traders to increase their chances of earning profits. Taking an account of the steep rise seen in Ethereum and Bitcoin which crossed the mark of 180% in less than four months, it shows why this practice remains to be one of the most preferred technique so far. A golden rule of thumb here is that the spreads of cryptocurrency transactions are higher compared to CFDs online and this high spread is mitigated by the substantial value of profits in less number of purchase. Such a form of investment is associated with achieving long-term profits, rather than speculating particular movement of the market in short run.
When it comes to CFDs, you don’t really have to purchase any form of underlying asset, rather you acquire the right to receive benefits from in the form of difference from the present and future prices of the asset- only when the direction of the market is same as what you’ve predicted. Otherwise, you might experience severe loss too. Now, the CFD brokers usually emphasize on the low spreads compared to trading cryptocurrency. The lower spreads do make it simple to enter the market and capitalize good returns in short movements, which portrays the speculative trait of the instrument.
Besides this, CFDs provide you an opportunity to multiply the contracts at x10, x20, x25 or x5 as well, such a feature is not seen in case of cryptocurrency trading. For example, when you invest $100 in the market using the multiplier x5 then the loss or the profits that occur would be calculated by controlling the position of $500. Do remember: proper analysis is a must when you make use of this feature as if things don’t move the way you had planned then price swings can bring you into serious debts. Hence, it is always advised to use it cautiously.
While in case of cryptocurrency the absence of multiplier makes it less risky than CFD trading. This means the trader can never lose all their money, until the value of purchased currency moves to zero. The short-term fluctuations in exchange rates don’t have a significant impact on the positions. When you hold your buying positions open then you are able to avoid the pitfalls and wait for the price to come back into the desired direction.
Both CFD and cryptocurrency purchase allows you to take advantage of take profit and stop loss levels. This option can turn out to be beneficial in unforeseen circumstances, considering the extremely volatile nature of the crypto-market. If you open take-profit trade call, then you are able to determine the specific point at which you consider to exit the market and close the position. Stop loss is meant to minimize the risk, helping you withdraw the position when price moves beyond a specified level.
Are There Any Benefits of Buying Cryptocurrencies via CFD?
Both the instruments are a strong contender for investment in the crypto-market, still, due to the nature of CFDs you can make the most of three exceptional benefits and these are:
Security
Even though the cryptocurrency platforms are 100% encrypted, still they are exposed to hacks. For instance, in 2016 a hacker was able to steal almost $50 million dollars as a result of which DAO (Decentralized Autonomous Organization) was collapsed and Ethereum witnessed its very first hard fork. With the help of regulated CFD brokers, your funds remain secured and safe to trade.
Liquidity
The cryptocurrencies are not treated as common currencies; hence it may not be that easy to sell them. In addition to that, certain transactions such as bitcoin or ether take too much time to process. In case of bitcoin CFDs trading you get to close or open the position immediately as you don’t own the asset.
Several Options
Like any other form of trading, when you opt for CFDs then you get the opportunity to sell in the short-term positions, speculate the movement of the market and earn profits. As stated before, you can set take profit or stop loss and close the positions when a certain level of loss or profit is reached.
Final Verdict: Cryptocurrency Purchase or CFD Trading?
Answering the ultimate question of “purchasing cryptocurrency or trading CFDs online is indeed a difficult one. Each one of them are great in their own ways when utilized in a perfected manner. Looking at the potential and the seamless expansion of the crypto-market, any of the two would be a great deal to harness the best from its cyclic movement. So at last, it turns down to (a) the trading strategies that you want to implement and (b) the preferences that you have.
If you don’t really want to own the currencies and still acquire profits then CFDs are not such a bad choice, on the contrary, if you a long-term player of the market who aspires to seek maximum potential from the currencies then purchasing them can turn out to be a great decision. And when you are up for bitcoin CFDs trading don’t forget to rely on a reputed broker who is able to deliver high-quality services, essential trading features, tools and much more, so that every call that you place becomes a winning order. Therefore, proper research and attention are of utmost importance when you are in search of the best brokers out there.
No matter what your choice might be, do make sure that you formulate well-planned tactics, test them and then implement accordingly. Because the more equipped you are with your investment skills, the better will your returns from the crypto market.
