CFDs are leveraged financial derivatives which are conducted as contracts between a trader and a brokerage company. When we have a contract, we do not actually own the underlying asset, alternatively, we hold the right to receive the difference between the current value of an asset and its value in the future. If our prediction on the value of the underlying asset is incorrect, and the difference is negative, the trader will have to cover that loss. CFDs can be created for shares, indices, commodities forex, and also cryptocurrency. With CFDs, traders can speculate on the price increase and price drop of an underlying asset. There is a great guide to cryptocurrency trading which explicitly focuses on crypto trading with CFDs.

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Let’s assume your prediction was correct and BITCOIN price goes Up to 8,643 . You decide to close your trade by selling at 8,643 pence (the current sell price). Remember, the commission is charged when you exit a trade too, so a charge of £11 would be applied when you close the trade, as 0.10% of the trade size is £11 (10,000 units x 110p = £8,643 ).

The FCA expressed concern over the price volatility and value of cryptocurrencies, and therefore the value of CFDs, complex financial instruments that allow speculation on the price of an asset, linked to them. As such they are “vulnerable to sharp changes in price” due to unexpected events or changes in market sentiment, it stated. A case in point cited was the 30% decline in the price of Bitcoin late last week.

Forex trading is the act of buying and selling of currencies between traders. In its simplest form, this involves exchanging a currency that you own into another, then exchanging it back at a later date. Forex market trading occurs “over the counter” between participants in the market, usually using online platforms.

1 thing you’ll need to keep in mind when it comes to cryptocurrency trading is that the price is extremely volatile. Where certain trade techniques used in forex might take months to come to fruition, in cryptocurrency trading, it could only take hours or days. While this is beneficial when it comes to making a profit, it could also be your downfall if the price moves the other way.

The old adage of “buy low, sell high” holds for cryptocurrencies just as it holds for any other sort of asset. Don’t buy cryptocurrencies when the price is at an all-time high, and don’t sell them when they’re at an all-time low. Cryptocurrency markets move up and down, and large movements up are often followed by sudden dips.

Another cool feature of trading CFDs on cryptocurrencies is that you can use leverage to increase your potential return on investment. For example, if you invest £100 with a Multiplier of 3, the value of your position is now £300. And your returns are tripled. But watch out: the Multiplier can be a double-edged sword. The investment can be lost very quickly if the price goes in the opposite direction. To avoid drama, we limit the Multiplier on BUX. Also, unlike other apps where you can end up with a negative balance, on BUX you can never lose more money than you put in.

CFD Demo account operates exactly like a normal account, but without real money. So you can try it out, learn how it works, and only when you feel like it, invest real money. you can find a list of Demo account providers at Live4trading.co.uk’s CFD Brokers list.

basic facts you need to know: The CFD market typically does not have short-selling rules. An instrument may be shorted at any time. Since there is no ownership of the underlying asset, there is no borrowing or shorting cost. In addition, few or no fees are charged for trading a CFD.CFD Brokers make money from traders paying spreads. A trader pays the asking price when buying, and takes the bid price when selling or shorting. Depending on the underlying asset’s volatility, the spread is small or large and typically fixed.

Reference
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Cryptocurrency Trading Versus CFD Trading: Is One Better Than …. (2018). Retrieved on October 8, 2018, from http://www.businesscomputingworld.co.uk/cryptocurrency-trading-versus-cfd-trading-is-one-better-than-the-other/.

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