CFD Trading – what is it?

Over the past few years, cryptocurrencies have risen to prominence and many people have joined the industry. Many trading platforms have sprung up to cater to the surging demand for cryptocurrency trading services. The surging demand has mainly been driven by the headlines created by the skyrocketing price of Bitcoin and altcoins. In particular, a large number of trading service providers have started providing cryptocurrency CFD trading services. 

A contract for difference (CFD) is an agreement between a buyer and a seller which demands the buyer to pay the seller the difference between the present value of an asset and its value at contract times. Instead of directly opening a position in a certain market, traders can engage in a contract with the broker to trade in an underlying asset without necessarily owning it. 


There are several advantages for trading contracts for difference on The benefits include:

  • Trade without the need for a crypto wallet
  • Great way to diversify your portfolio
  • Cryptocurrency prices are not correlated to any central bank or financial instrument
  • Trade both rising and falling prices in a 24/7 crypto market

How does CFD trading work?

CFD trading is an advanced cryptocurrency trading strategy that many professionals have adopted. The CFD investor or trader will not physically own the underlying asset. Instead of buying Bitcoin and holding it in a digital wallet, a trader can opt to speculate on the future price changes of Bitcoin price whether it will go up or down. 


If a trader anticipates the price of the underlying asset to rise, they open a buying position and hope the outcome will be as anticipated. In case of an increase in the price of the underlying asset and the trader had bought, they will earn profit depending on the number of units they bought and the extent of the surge. The difference between the purchasing and selling price indicates the profits earned by the trader. 


On the other hand, if the result of the trade is contrary to what was anticipated, the trader tends to make a loss. The extent of the loss depends on the number of units of the asset bought, and the extent of the plummet. 


The ultimate goal of trading digital currencies is to make profits. Making winning trades can be quite challenging. Regardless of whether you are well versed in cryptocurrency trading, there is always an element of risk associated with investing and trading cryptocurrencies. For this reason, it is vital to calculate the percentage risk and determine how it can negatively affect your trading capital. To avoid making significant losses when trading cryptocurrency CFDs’, here are some key tips to guide you through your crypto trading journey:

Selecting a reliable crypto CFD trading platform

As a result of the hype surrounding cryptocurrency trading and the rising prices, many trading platforms have come up and are still coming up every day. Malicious actors and fraudsters have not been left behind as well. They have created fake platforms to hoodwink unsuspecting beginners off their hard-earned money. 


Choosing the wrong platform could result in massive losses and even discourage you from trading cryptocurrencies ever. It’s important to be cautious before joining a crypto CFD trading platform to avoid such unfortunate incidents. You should analyze factors such as security, number of supported cryptocurrencies, compliance, fees and commissions, and the reliability of the customer support. 

Learn fundamental and technical analysis

Learning how to analyze and identify trading opportunities is a key aspect in the financial markets. Conducting analysis helps you determine the appropriate entry and exit positions. Learning technical, fundamental analysis, and risk management strategies goes a long way in helping you succeed in the crypto trading landscape. Technical analysis provides you with suitable entry and exit points, while fundamental analysis gives you the reason for the price movements. 


Have a proven and feasible trading strategy

There are several trading strategies in the financial markets, but not every one of them guarantees success and huge profits. You need to select a strategy that complements all your trading needs so that you can avoid unnecessary losses and inconveniences. There are several trading strategies and you should research how each one of them works and select the most appropriate for your needs. 

What do ‘long’ and ‘short’ mean in CFD trading?

‘Long’ and ‘short’ in CFD trading are terms used to refer to the position you open on a trade. One of the core advantages of trading CFDs is that you can speculate on market price changes in either direction – if you’re ‘long’ you anticipate the price will go up, while if you’re ‘short’ you anticipate the price will go down.

So, while you can imitate a conventional trade that profits as an underlying asset rises in price, you can also open a CFD position that will profit as the base asset plunges. This is referred to as selling or ‘going short’, as opposed to buying or ‘going long’.

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