Let’s get right down to the basics, what is a CFD Broker?
They stand for Contract For Difference Brokers. These contracts exist between 2 parties, typically described as “buyer” and “broker”, stating that the broker will reward to the buyer the difference between the current value of a coin and its value at contract time (if the difference is negative, then the buyer pays instead to the broker). Basically, the trader buys a right to receive the difference between the current and the future asset prices — but only if the trend direction is predicted correctly. Otherwise, the trader himself will incur losses comparable to potential earnings. CFDs are also leveraged assets meaning you can increase your exposure for each position (buyer or seller), thus increasing your potential profits. It also lets you profit from smaller market movements unlike traditional trading.
Note that this doesn’t apply to long-term investors.
Since the crypto boom of 2017, the numbers have since died down, although interest in investing in cryptocurrency is still wide spread. In the past, there has only been two investment options available to the public, you could either trade on a cryptocurrency exchange or long-term invest with a wallet.
Why are people using CFD’s for cryptocurrency trading? For safety, of course.
In a market as unregulated as this one, there is no security for the consumer, which makes things a little more complicated. Exchanges have historically been known to be somewhat untrustworthy, for example, since 2009 hundreds of exchanges have disappeared from the web and taken the investor’s money along with it. Exchanges are also subject to hackers, and some of these hackers have gotten away with millions. Basically, it’s not the most secure playground for you and your hard earned money.
This is where CFD trading comes in, as an established market that has been regulated and controlled for many years. Some would argue that this is going against the “blockchain” way of things, as decentralization and de-regulation is the name of the game, it doesn’t help those of us who are investing, sleep any better at night.
There are many CFD brokers that are reputable and regulated, who are legally obligated to protect you and your money.
Opening up an account with an exchange has gotten easier, but your only course of action to make profit is from buying low and selling high. Though some exchanges have started to entertain the idea of being able to short sell opportunities, there’s no real way unless you are utilizing a CFD. Basically, CFDs make it as easy for you to bet against the market, as it is to invest. For example, if you have a hunch that ETH will skyrocket tomorrow, you take a buy position. If you think the opposite, then take the sell position. This is a magnificent way of creating more investment options for the trader, especially in such a volatile market.
Obviously, like most things, using a CFD comes with a few rules. Make sure to use someone licensed and regulated, since they are legally obligated to protect you as a customer. Do your research, talk to the people that have done this before.
At the end of the day, CFDs seem to fit the crypto market and if the market doesn’t rear it’s head soon…this might be our only chance at making a profit.
NOTE: This article is not intended for investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.