Usually, cryptocurrencies are bought and sold on specialized exchanges. However, there is another way — trade with contracts for difference (CFD). Today we will look at this relatively complex financial instrument and explain how it works in simple words.

What is CFD

A contract for difference is an agreement between a trader and a broker. If the trader buys CFDs on bitcoin, he owns the most cryptocurrency. He owns only a contract that specifies the price at which he bought the coin. At any time trader can close the position and return your contract to the broker. If his prediction is correct, he will receive the corresponding reward. In case of error, the same amount will be debited from his account. With CFDs traders can bet on both the growth and the depreciation.

The major terms for CFD traders

To understand the basics of CFD trading, you should remember some of the most common terms and concepts.

Long position

You open it up, if you think the market will rise.

Short position

You open it, if you are going to decrease.

Spread

The most common method of payment CFD broker. The spread is the difference between the prices of supply and demand. For example, the broker sells the bitcoin for $6700 and bought for $6600. In this case, the spread is $100. Due to the spread the broker earns the bulk of the money.

The lever

The linkage (or leverage) can increase the effective capital. The maximum size of the shoulder in the European brokers regulated by CySEC or FCA, is 2:1. A lever allows you to double your profits by predicting the correct. However, the shoulder not only increases profits, but also proportionally increases the losses.

Stop loss

To avoid excessive losses, it is necessary to apply stop losses. These orders are automatically triggered and close the position at a certain price.

TP

This type of orders automatically closes a position upon reaching a specific profit is determined before the transaction.

Suitable for CFD cryptocurrency trading

Trade with leverage (or margin) may not be suitable for all investors in the cryptocurrency. It is recommended only to traders, opening up the position for a few minutes or hours. When you rollover the next day some brokers charge extra.

If done right, margin trading can be extremely profitable. Take for example the case when only day of XRP has risen by 84%. Of course, such opportunities do not often, however, we all know that even without them, the cryptocurrency market is of high volatility.

The advantages of CFD trading digital currencies

First of all, transactions are executed very quickly and allow you to put not only on growth, but also to reduce the cryptocurrency. In addition, anyone can open a free demo account that does not require initial investment. Novice capturadora it allows you to practice and master the markets. Finally, you can start trading with only $10, and at any time to benefit from the support broker.

Cons of CFD trading digital currencies

Most brokers offer a very limited set of cryptocurrencies. Usually available no more than 12 digital currencies; often their number does not exceed six. Another huge drawback is that the proportion of brokers who charge for transfer of positions the next day. In other words, if you leave an open position for a few days, you can lose a big amount only for her transfer.

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