How Does CFD On Cryptocurrency Work
Since 2017, during the historic crypto-boom, many investors have been fascinated about cryptocurrencies especially those who have been looking for new ways of investing in this digitized asset. While there are some investors who choose to buy and hold cryptocurrencies for a long period of time in the hopes of profiting from it, traders on CFDs venture on the fluctuation of price of cryptocurrency against a chief fiat currency. This article will feature on analyzing the ways on how to trade cryptocurrencies on CFD and know how is it different from actually buying and owning cryptos.
What Are Cryptocurrencies?
Cryptocurrencies are simply known to be encoded digital currencies which can be utilized to make payments online, and even transferred to your peers. Cryptos are decentralized. This means that they are not under any central bank nor any government institution. Cryptocurrencies are using a master ledger which is called a blockchain to store and keep track of all the transactions. The miners are the ones that perform as record keepers for their communities of cryptos by making new coins and authenticating the blockchains.
Why Are Cryptocurrencies Popular?
In 2017, cryptos enjoyed immense media attention when the crypto- boom was documented. Leading cryptocurrencies like bitcoin (BTC), Litecoin (LTC) and etherium (ETH) have been able to multiply their worth thousands of times already just within a few months, garnering a massive recognition as assets with high value. As a matter of fact, bitcoins have been addressed as the new digitized version of gold for it to increase to $20,000 all- time high which is four levels higher than the price of gold which is 400 troy ounces.
How Does Cryptocurrency Trading Work?
There are a few important differences between contract for difference (CFDs) trading and the actual crypto-ownership. To be able to buy bitcoins, you must create an encrypted or encoded wallet while in CFD trading, the traders can venture on their price values against other currencies.
CFD trading lets the trader to place a buy or sell position based on whether they assume a specific cryptocurrency will be lower or higher in value compared to other currencies like the USD and EUR. This is exactly the reason why, on platforms like MetaTrader, cryptos are quoted in pairs like BTC against the US dollar or BTCUSD. It is important to emphasize here that crypto pairs trading is not equivalent to owning the quoted cryptocurrency. In bitcoin CFD trading for instance, a contract is made to trade the difference in the bitcoin value from the moment when the contract started and the moment when it is closed. The changes in bitcoin value directs how much is earned or lost from every trade once the trader closes the spot.
Remember that CFD trading on crypto currency is a product that is leveraged. This means, traders can have small deposits and make much bigger exposure to the market. Use of leverage can involve significant risks and benefits. There is a possibility that investors can lose all the capital they invested, and it is very important to know the involved risks before you deposit any funds.