What are the benefits of trading crypto CFDs?
Cryptocurrencies, underpinned by decentralized blockchain technology, have transformed the financial landscape. This technology, distributed across numerous computers, manages and records transactions, offering a high level of security that is one of its main appeals.
Cryptocurrencies are "mined" by individuals with substantial computing power, who receive these virtual currencies in exchange for their computational resources. Unlike traditional currencies, the supply of cryptocurrencies is controlled, with most having a maximum limit; once this limit is reached, no new coins will be produced.
At FOREX.com, we offer an alternative to buying cryptocurrencies on an exchange. You can trade cryptocurrency CFDs, allowing you to speculate on price movements without the need to hold the actual cryptocurrencies in a virtual wallet. Let's explore the advantages of trading cryptocurrencies as CFDs.
Why trade cryptocurrency CFDs?
Go long or short
CFDs on cryptocurrencies allow you to potentially profit from both rising and falling prices:
You can go long, which means you will buy cryptocurrencies with the expectation that they will increase in price
You can be short, which means that you will sell cryptocurrency in the expectation that the price will go down
Shorting a crypto allows you to profit when the price declines in value. This is not possible when you buy real cryptocurrency. It is also worth noting that going short can be used to hedge any exposure you have.
Trade 24 hours a day / 5 days a week
At FOREX.com, you can trade cryptocurrencies 24 hours a day, 5 days a week, from 5pm Sunday to 5pm Friday ET.
Leverage lowers the cost barriers to cryptocurrency trading. It allows you to deposit a fraction of the deposit to access a much larger trade size.
At FOREX.com, our crypto margin requirements start from 25%. This means that to trade a unit of a cryptocurrency, you only need 25% of the value of that unit to take a position.
Leverage can magnify your gains, but it can also magnify your losses. This is a fundamental trading concept to understand.
Cryptocurrencies can experience massive price swings in a short period of time. It is not uncommon for Bitcoin to see a 10% swing over a weekend.
This presents traders with great opportunities and risks in equal measure.
Start testing your new knowledge on how to trade cryptocurrencies with CFDs with the FOREX.com demo account.
You don't need a virtual wallet
By trading cryptocurrency CFDs, you don't have to deal with complicated virtual wallets and setting up additional accounts, all of which are necessary when buying real cryptocurrencies.
Managing risk in cryptocurrency CFD trading
As we mentioned before, when buying cryptocurrencies in the traditional way, having to store them in a virtual wallet, you must constantly monitor the price to know if it is convenient to hold or sell them.
If you trade crypto CFDs at FOREX.com, you can use our trading tools like stops and limits to be aware of any adverse market movement. These orders will potentially close out a trade if the price of the cryptocurrency moves against you by a certain amount, helping to limit your loss.
Using limit orders is another useful risk management strategy. A limit order allows you to set a specific price at which you want to buy or sell a cryptocurrency, ensuring that you only enter trades at prices that align with your trading strategy.
Diversification is another important risk management strategy. By spreading your investments across a variety of cryptocurrencies, you can reduce the impact of any single cryptocurrency's performance on your overall portfolio.
Lastly, it's important to only risk a small percentage of your trading capital on any single trade. This can help to ensure that even if a trade goes against you, it won't significantly impact your overall trading capital.
Remember, while risk management may help to limit potential losses, it does not guarantee profits. It's important to have a well-thought-out trading plan and to stick to it, regardless of short-term market fluctuations.
Ready to start trading? Find out how to trade cryptocurrencies.