Bitcoin CFDs Explained

/Bitcoin CFDs Explained

Bitcoin CFDs Explained 2018-05-07T07:26:39+00:00

Bitcoin CFD – All You Need To Know

Quick inner navigation:

  1. What is a Bitcoin CFD?
  2. How is Bitcoin CFD different from trading Bitcoins?
  3. How does Bitcoin CFDs work?
  4. Short-term and long-term Bitcoin CFD trading
  5. How to trade Bitcoin CFD?
  6. Best Bitcoin CFDs brokers
  7. The list of all the Bitcoin CFDs

The rise of Bitcoin has made it a top interest generally, and even though a lot of people have made money from it and are still making themselves a lot of money, they are other individuals losing money due to wrong entry into the market and only buying Bitcoin in hopes that it will rise over time.

Since Bitcoin is not monitored or backed by any organization or government, the price is always in a free rise and fall momentum based on the tune of the market conditions. So no one can truly be sure if the market will rise or fall at any point in time. All depends on the law of demand and supply, the more the buyers the likely the hike in price and the more sellers the market registers, the more the chances that the price of Bitcoin is going to drop. So everything works in a circle, and all depends greatly on whether you are selling and buying Bitcoin at the right time.

To solve the problem of having to actually buy Bitcoin whether high priced or sell your Bitcoin at a loss, Bitcoin CFDs was integrated by brokers into their various platforms.

What is a Bitcoin CFD?

Contract of difference is a kind of agreement being made between a trader and a broker as per the likely price or direction of any financial instrument over a period of time and set limits. Bitcoin CFDs on the other is the agreement a trader makes with a broker upon entering either a buy position or a sell position into the market. To break it down, BTC CFD is more or less a bet being placed by a trader on the direction of Bitcoin based on levels set and the current available balance of such trader.

When you make a trade on a CFD Bitcoin instrument, you will be allowed to pick the probable directions you think the market is likely to drift towards. If you are right, you get rewarded, and if you are wrong in the direction you picked, you will have to part ways with your money. Therefore, you do not have to buy real Bitcoin actually to start making money from the directions of Bitcoin. All you just need to do to bank in on the Bitcoin rush is to be right about the directions you think Bitcoin will go.

This has in it a lot of advantages since you are being shielded from the unruly nature of the actual Bitcoin market and also get to enjoy part of the Bitcoin action for a fraction of what you will normally be exposing assuming you bought Bitcoin in the real sense of it.

How is Bitcoin CFD different from trading Bitcoins?

Bitcoin CFDs is different from actually Bitcoin in just one clear-cut and basic way. With BitcoinCFDs, you are only taking a position which interest to whether the price of Bitcoin moves to the directions you think it will move to. On the other hand, trading in real actual Bitcoin means you are buying the real things, and your only hope of making money when  the price moves higher than the one you originally paid to buy it, as that is the only time you can exit the market with profit.

Cryptocurrency, in general, has become readily available to trade as a derivative with brokers with Bitcoin and Etherum leading the pack. Cryptocurrency has really outperformed the set limits in the past, and those who got in early are quite happy they eventually did at that point. For those who got in late, the same effect can also be experienced now with the aid of a leveraged trade placed from a (Bitcoin CFDs broker) account you registered. Since CFDs are quite popular for the use of a margins account, trading with such an account can further amplify the buying and selling effect of the actual available money the trader has in the account. For example, if all you have in your account is what can be used to buy 1 BTC,  with a leverage of 20:1, you will be able to take positions that equal to buying 20 Real BTC.

This means instead of being stocked with just 1 BTC in a non-CFDs trading account or a non-leveraged account; you are actually going to be enjoying the same profit someone who bought actual real 20BTC is going to be enjoying or a huge loss if the reverse is the case. If you happen to predict the wrong direction for the price, unlike in the case of real Bitcoin where you can hold you BTC as much as you want, in CFDs, your account gets reduced till it reaches zero or until it touches the point you have set for it to touch. So if you don’t have a heavy account balance that can carry the weight of such loss it is better you have measures set in place to prevent such situations.

How does Bitcoin CFDs work?

In the true and basic sense of things, CFDs is more like gambling since you are going to be betting on some certain criteria. When a trader takes a position with a CDFs account, you do not in any way have the right to the underlying asset you just made a trade on. What you bought or sold is a contract that the price of the assert you took a trade on, will either rise or fall. So basically you are gambling on whether a trading instrument of your choice will either increase in value or decrease in value over time. When you are trading with a CFDs broker, there are only two possible directions your trades can take, and it all comes down to which of the direction you decide to go with. Every trade you make is referred to as a position since it is your stance on where you think the market willbe going.

The two known positions that can be taken with CFDs brokers account are;

  1. long position
  2. Short position.

Long position

The long position is clearly stating that you are strong of the notion that the price of the asset you traded on will increase in value. Another word for a long position is BUY.

Short position

Here you are selling the asset, which means to say you are betting in favor of a decrease in value of the asset you have chosen to trade with. This can also be referred to as shorting. To execute any of these trade positions, all you need is a fully funded CFDs brokers account. After that, you are allowed access to selections of available assets to pick from. These assets range from currency, stocks, ETFs to commodities. From then on all you just need to do is click the buy or sell button on a CFDs asset and your trade will be automatically processed and activate in the market. All these are done using a complex computer technology that speeds up the whole process to less than few seconds. When you are making these trades, there are some terminologies that you need to understand well before you can truly start making money from CFDs trading. These terms include Lots size, Leverage, stop loss and take profit

  • Lots Size: This is the measure of the unit or number of instruments you want to buy or sell. A standard lot size is 100,000 units. This is further broken down into micro lots and mini lots sizes. So if you can’t afford to buy or sell the full standard lots size of 100,000 units, you can opt-in for a micro lot of 1000 units size.
  • Leverage: This is a multiplication of the actual value of your account balance. Leverage gives you the chance to make purchases on assets that are quite bigger in values than you can actually afford to buy or sell. Leverage can be as high as 2000:1 depending on how bad the broker wants to attract traders.
  • Stop loss: Just like the name suggests it’s the level set or put in place by a trader for a particular trading contract to close upon reaching. It is usually the maximum risk a trader thinks he or she can afford on a single trade made.
  • Take profit: This is the level set by a trader projecting the likely direction and value an asset is going to reach before it turns around. It is the point where the trader wants to cash in on profit made.

Short-term and long-term Bitcoin CFD trading

Generally, Bitcoin CFDs are known to be the best options when it comes to day trading since the execution is fast with the added advantage of a low spread rate across all platforms. Since Bitcoin is well known when it comes to jumping of price from a state of stagnancy to ahyperactive state within minutes, this makes it a better instrument for CFDs trading. Also, you get to enjoy SWAP free trades when you do day trading. The overnight commission paid on trade has been known to add greatly to the total cost of a trade in the long run.

Short-Term Trading

Day trading is considered to be a short-term trading approach since these trades get opened and closed within a trading day or session. It is more or less a fast approach to making money from the financial market while being exposed to the same amount of risk long-term investors also get to enjoy. Day traders usually employ a range of indicators and analysis that are focused on the short-term outcome of a price movement. They usually don’t trouble themselves much on the possible future of the asset they have interest in. Short term traders only care about what is going to happen now.

Long-Term Trading

Long-term trading, on the other hand, takes into consideration all the factors that determine the future of a particular trading instrument. All these factors are combined together to come up with a trading plan that is put in place for trading an asset in the hope of a long run profit turn around. This kind of trading approach is known to work best on Stocks, Commodities, Bonds, ETFs and some Currency pairs. With the way Bitcoin and other Cryptocurrency moves and the amount they will cost per each movement, a trader might lose a trade even before it starts moving in the proposed directions. So it doesn’t really pay to trade Bitcoin contract for difference using a long-term trading approach.

It is highly advised and recommended that a Bitcoin CFDs trader or any other Cryptocurrency traders make use of a short-term trading approach rather than a long one. But if you are into buying real Bitcoin and you know well that you can afford just to sit back and watch without doing anything. Then you can buy and hold as long as you want since you own the asset now and the worst that can happen is for the value to keep decreasing and later become obsolete. With all indications so far, this is bound not to happen at all.

How to trade Bitcoin CFD?

To trade Bitcoin CFDs, you will need exactly the same things you require to trade any kind if CFDs. Things like brokers and account funding are constants. Unlike with other types of markets where you need to start searching for information on government news, bank rates, and other economic related news, Bitcoin trading doesn’t require any of this. What moves the market are the traders themselves and news that has to do with Bitcoin itself, for example when news of a big fund, bank or an individual buy Bitcoin in large numbers, the cryptocurrency reacts to this news the same way traders do. The good or bad news triggers traders to either buy or sell Bitcoin in large numbers. This will definitely affect the price of Bitcoin.

Another factor that should be considered when trading Bitcoin is technical analysis. These involve the use of technical indicators like EMA, RSI, and MACD to predict the possible direction of the market. Both technical analysis and Bitcoin news can also be combined together as they both interpret human emotions.

Best Bitcoin CFDs brokers

The process of picking an appropriate CFD is essential as there are many frauds and scams online that you definitely should not deal with. There are certain parameters and criteria you need to take into account to find out whether a CFD is safe, profitable, and reliable enough. For instance, you should pay attention to the profit margins, potential risks, losses, commission and so on. To give you a better idea, here is the list of some of the most outstanding and reputable Bitcoin CFDs brokers and the information you should take into account.

Plus500 >>

This is a Bitcoin CFDs broker that stood the test of time and keeps proving to be a major player in the industry. The broker was launched in 2008 and CFDs for Bitcoin was later introduced in the year 2017 to the list of the available instrument. The broker is quite popular among cryptocurrency CFDs traders, and its long list of regulatory bodies has also increased the people confidence in this broker.

Available Cryptocurrencies

  • BTC/USD (Bitcoin)
  • ETHBTC (Ethereum/Bitcoin)
  • BCH/USD (BitcoinCash)
  • ETH/USD (Ethereum)
  • NEO/USD (NEO)
  • LTC/USD (Litecoin)
  • XRP/USD (Ripple)

Payment options

You can make your deposits and funds withdrawal using the following methods;

  • Electronic wallets: Paypal and Skrill
  • Debit or Credit bank Card
  • Banks transfer into Plus500 UK Barclays account. (Only for deposit)
  • Banks wire transfer (Withdrawal)

Does it have fees?

Just like every Bitcoin CFDs Broker Plus500 charges a spread on every trade made, they also charge inactivity fees, withdrawal fees, and oversight commissions.

Min. Deposit:

The minimum deposit allowed is $/£/€ 100 depending on your chosen denomination.

Leverage

Plus500 allows leverage of up to 300:1. The leverage offered is based on the kind of instrument traded.  For Bitcoin, the leverage allowed is at a maximum of 5:1.

IQoption >>

This is a Binary option focused broker that was launched in 2013 by Dmitry and Co in Russian. The broker is well regulated by CySec and other regulatory bodies. The broker started as a binary optionsbroker but has risen to become a top contender for leadership in CFDs trading, especially when it comes to currency pairs and cryptocurrency. They are well known and consider a top three choice by most traders when it comes to picking a broker to work with. They are also well known for speedy trade executions and very flexible trading expiration. This is a broker with a very good reputation.

What cryptocurrencies does it pair?

The available Cryptocurrencies crosses on the platform include;

And more. All these cryptocurrencies are crossed against the US Dollar as a base pair.

Payment options

IQ options are known for their versatile nature when it comes to selecting the perfect payment method.

The following payment methods are allowed on the platform;

  • Credit/Debit Card
  • Wire Transfer
  • E-Wallet Service (Neteller, Skrill, and WebMoney)

All these methods are free of deposit fees.

Does it have fees?

IQ options charges 2.9% fee on every Cryptocurrency CDFs buy position, while no fee is charged on sell positions.

Min. Deposit:

The minimum deposit allowed by IQ options is $10 depending on the conversation rate on your chosen denomination.

Leverage

For Cryptocurrency CFDs trading the maximum leverage allowed is 5:1 while anotherinstrument enjoysleverage of up to 300:1.

ETORO >>

Etoro was founded in 2007 as a CFDs broker. The broker lays more emphasis on social trading than any other broker. This is very much evident in their copy trade which they pioneer in the industry. The broker makesit quite possible for people with no knowledge of how the financial market works to be able to cash in well on the experience of other traders. The broker is well regulated by agencies such as CySEC, ASIC, CFTC, MiFID, FCA andis widely recommended by professional traders.

Available Cryptocurrencies crosses

  • BTC/USD
  • BCH/USD
  • DASH/USD
  • ETC/USD
  • ETH/USD
  • LTC/USD
  • XRP/USD

Payment options

Etoro allows you to make payment to your account using the following methods;

  • Credit card
  • Debit card
  • Neteller
  • PayPal
  • Skrill
  • WebMoney
  • Yandex Money

In order to prevent money laundering, withdrawals can only be made using the same method you deposited with.

Does it have fees?

A fee that ranges from 1.5-6% is being charged per buy trade that is made, and you don’t get charged for a sell trade. Also, a buy trade doesn’t attract any daily fee while a sell trade attracts a daily fee, so you need to be waryof how long you plan on keeping you sell trade open.

Min. Deposit:

The minimum deposit allowed on the platform is $200 for Arabic regions and $100 for other regions. But since the minimum trade you can take is $200, the best bet is always to fund your account with nothing less than $1000.

Leverage

Just like most major CFDs brokers, Etoro also allows the use of leverage on cryptocurrency. This leverage can be up to 5:1 maximum. So your account has 5 times its actual strength.

Avatrade

This broker came into existence in 2006 during the period when forex was just becoming a household name. Ever since then, the company has come a long way to become part of the companies shaping the future of the retail financial market. The Broker deals mainly in helping traders to execute CFDs trades with or without leverage. The broker generally has a good online community representation.

Available cryptocurrencies pairs

  • ETH/USD
  • BTC/USD
  • BTC/EUR
  • BTC/JPY
  • BCH/USD

And more.

Payment options

Avatrade allows traders to make deposit and withdrawal using the following methods;

  • Debit and Credit cards
  • Bank Transfer
  • Electronic wallets – PayPal, Payoneer, Neteller.

Does it have fees?

Avatrade charges no commission on trades made. The only charges recorded on your Bitcoin CFDs trade is a spread which is depended on how volatile the market really is.

Minimum Deposit:

The minimum deposit allowed by Avatrade is £$€100.

Leverage

Leverage of up to 20:1 is allowed on Bitcoin trading.

What are the advantages of Bitcoin CFDs?

There are many advantages attached to trading Bitcoin CDFs which include:

  • High leverage

Unlike the normal ways and process of buying Bitcoins, you can only make a trade with whatever amount you can afford. But with CFDs and its very high leverage rates,  you can now enjoy the thrill of using money enough to buy just 1BTC to get 5-20 times that and cash in enormously on a good movement.

  • Minimum lot size

A standard lots size cost 100,000 units. This means that to buy a single standard lot of Bitcoin or any other CFDs instrument, you need to have a balance of 100,000 units. CFDs brokers solved this problem by making it possible for traders to be able to buy into a small portion of the 100 thousand units through the use of a margined account with high leverage rates. This has broken down the standard unit from 100,000 to 1000.

  • Take Advantage of Bitcoin’s Volatile Nature

Bitcoin is known to be quite unstable which makes it a very volatile trading instrument. Traders can now take advantage of this volatile nature and make themselves a huge amount of cash with the use of leverage to increase their earning potential. It’s only with Bitcoin and other cryptocurrencies that a trader can record about 50% profit within an hour of opening trade.

  • Get Paid in Your Native Currency

Most of these CFDs brokers allow deposit into local bank accounts. This is to foster a more convenient relationship with their clients in general. Also, Bitcoin is now widely accepted by most local exchanges, so even if you get paid in Bitcoin, you can easily just go and exchange it for cash.

  • Bitcoin CFDs are good for people that know nothing about Bitcoin.

Once you understand that nothing is certain when it comes to the financial market and you are comfortable losing money on your first try, then you can give Bitcoin CFDs a try. There are a lot of places to get information on what directions you should look to trade. All you need to do is place a trade in that direction and watch your account balance soar.

  • You only get to care about price change and not the coin value

When you trade BitcoinCFDs, you don’t care if the value of the coin is plummeting or rising, you only care about being on the right side of the price movement, and nothing else matters to you. Actually, Bitcoin traders don’t have this luxury.

What are the Disadvantages of Bitcoin CFDs?

As sweet as the idea of trading Bitcoin CFDs might be, it has its own disadvantages which include;

  • CFD industry is not highly regulated.

In recent years the CFDs industry has started correcting its unregulated nature as many agencies and bodies are being put in place to check and balance the actions of these brokers. However, this hasn’t done much to clamp down the effect of fraudulent brokers. There have been cases of traders getting their account inactivated upon seeking withdrawal. So as a trader you need to be extra careful.

  • Risky and can lead to loss of funds.

The financial market on its own is quite risky, addingBitcoin’s volatile nature to the mix and you have a more risky trading environment. If you are not careful, you can lose all your life’s savings on a single trade.

  • Too many fees

When you trade other CFDs instruments, the spread rate is usually very small and sometimes negligible. With cryptocurrencies, the reverse is the case, with commissions as high as 6% on every trade made, the trader needs to make more than 6% on every trade made to breakeven at least. This is too much for some traders and makes them stay clear of Cryptocurrency CFDs totally.

The list of all the Bitcoin CFDs we’ve reviewed:

In a Nutshell

Financial Trading generally is known to be a very risky business endeavor. This is why it is quite often always advised that one should only trade with money you can afford to lose because when it comes to the financial market, nothing is certain, it’s all just predictions. Bitcoin CFDs trading is still new, and more brokers are integrating it into their platforms as the daysgo by, so we hope to see more competition, which will further bring down the commission and increase leverage.

We hope you enjoyed reading this Bitcoin CFDs comprehensive coverage, feel free to frequently check our website for morecryptocurrency related articles you might be interested in. Thank you.

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