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Crypto CFDs are no longer something new for the investors. They have been around for quite some time now. In fact, they started popping up back when the crypto boom was in full swing. The reason is quite simple. The CFD and traditional asset brokerages could not compete with cryptocurrencies in terms of popularity. Furthermore, the new asset was quickly becoming popular with the younger generation, which is an ideal market for future customers. Therefore multiple companies started listing the option.
One of the most notable cases was when BTC trading was on the rise in South Africa, even though there were absolutely no crypto firms in the country. Therefore, already regulated and settled financial service providers started mass marketing and providing crypto CFD trading options. But soon enough, the general population changed their ways and opted for actual crypto exchanges for very simple reasons.
I personally cannot tell you which one is better to trade with, but a listing of simple advantages and disadvantages that come with crypto CFDs should be enough to help you make your own decision.
So without, further ado, here are the main points.
Why trading crypto CFDs is worth it
Leverage is something quite foreign for crypto traders. It is very rare on even the largest cryptocurrency platforms, but is considered to be a key part in traditional asset trading. So what is it? Well, it’s basically borrowed money from the broker that you can trade with.
Let’s say that you decided to trade Bitcoin CFDs with $10, but you decide to use the 1:20 leverage that the broker is offering you. With the help of that leverage, you can trade with $200 instead of just $10, but at the end of the trade, all of the borrowed money needs to be returned with interest. However, even when you return the funds, you still are able to increase your profits. So if you had a 100% profit, you’d have $400, $190 of which was borrowed and + $10 as the interest. Still, you’d be left with $200 profit instead of just $10 if you were to trade with the initial investment.
However, leverage also has a disadvantage. As you know, not all trades are massively profitable, and some are just complete losses. Therefore, the more funds you have in a trade, the more funds you can potentially lose – funds that you don’t own. A bad decision with a trade could actually put you into debt.
CFD platforms tend to have better security overall. Furthermore, they don’t generate nearly as much attention from potential hackers as the crypto exchanges do. Therefore, the security of those funds is usually a guarantee.
And even if they’re not, there’s the other advantage of CFD companies that have your back…
CFD brokerages usually hold licenses from local financial regulators. In those licenses, they are required to comply with some simple rules of anti-money-laundering and all the general stuff. But, the most important part is that, if the platform suffers a security breach and users lose funds, the platform is then responsible to compensate the victims. Crypto exchanges also follow this model, but we’ve learned our lesson with Mt. Gox.
The advantages of Crypto cFDs end here, unfortunately, and there are a plethora of disadvantages.
Why trading Crypto CFDs is not worth it
You don’t own the cryptos
Crypto CFDs are not cryptocurrencies themselves. They are actually contracts that determine your purchase. This could be extra uncomfortable for most crypto traders as the allocation of your assets is completely jeopardized. The only way you can diversify is to cash out and invest somewhere else.
Furthermore, cryptos are now being used as a means of payment as well. For example, there are some exclusive prices on ads and mobile data if you use the corresponding cryptos as payments. Unfortunately, the CFDs of those cryptos do not suffice.
A mountain of fees
Although crypto exchanges themselves can be classified as a mountain of fees, they still can’t even come close to CFDs. Pretty much everything about CFDs has an extra cost.
You want to cash out? Pay a fee.
You want to deposit? Fee.
You want to retain your position for more than a day? That’s right: Fee.
There’s another major point: CFDs cannot be used for long-term trading. You can’t simply buy them and then wait for the price of the underlying coin to go up. Well, technically you can, but it will cost a fortune in overnight fees. You see, CFD trades have an expiry date. After reaching the date, they automatically close, no matter if it is a losing or a winning position. In most cases, CFDs are completely irrelevant for HODLers.
A lack of variety
Variety is also something crypto CFDs are not so good at. You see, having CFDs for every coin would cost the brokerage quite a lot; therefore, they usually restrict them to Bitcoin and Ether. If you’re extra lucky, you may find one for Litecoin as well.
As you can see, crypto CFDs come with their advantages as well as disadvantages, like pretty much anything else in this world. You can’t take something without giving something else up.
Generally, the conclusion is this: Cryptocurrencies themselves are good for HODLers and users who can make payments.
Crypto CFDs, however, are good for day traders who like to tangle with large funds and maximize their income.