The meteoric growth of cryptocurrencies over the past few years had a profound impact on global financial markets. Alongside the progress of cryptocurrencies using blockchain technology, many investors and trading professionals are diversifying their portfolios and using Cryptocurrency Contracts for Difference (CFDs) in order to generate returns without actually owning any digital coin or assets. This guide will explain the main differences between Crypto CFDs and Crypto Assets, or coins.
Trading Crypto CFDs
Coincident with the progress of the cryptocurrency market, the possibilities for profit-making have also become more widespread. CFD trading on cryptocurrencies is a prominent example of this. The method of day trading that originated from the forex and stock markets has now been adapted to the cryptocurrency markets as well. Basically, a cryptocurrency CFD is the same as a traditional CFD, except for the fact it involves trading cryptocurrencies instead of fiat currencies.
Crypto CFDs appeal to traders who want to profit from price movement but do not want to deal with the technical process of securely buying and storing cryptocurrencies. You don’t need to have an account with a cryptocurrency exchange to trade crypto CFDs or set up a cryptocurrency wallet to store cryptocurrencies. Furthermore, crypto CFDs adhere to all financial regulations, which means that you need not be concerned about their legality when you purchase and sell them.
The benefits of trading cryptocurrency CFDs are similar to those of trading the traditional CFDs on forex markets- they enable traders to take long or short positions with small amounts by using leverage and thereby profit from the price difference between the opening and closing positions. Furthermore, since cryptocurrency CFDs do not have expiration dates like futures contracts, it is possible to place trades without having to worry about rolling over contracts periodically.
Trading Crypto CFDs is Best for You if:
- You are interested in speculating on the price movement of an asset
- Your primary goal is to invest in cryptocurrencies like Bitcoin and then sell them for a profit
- You don’t plan on owning the actual crypto as you won’t use it to send or pay anyone
- You do not wish to be responsible for the security and safekeeping of cryptocurrency assets
- You want to make a profit on both bullish and bearish market conditions
- You are interested in experimenting with leveraged trading
While cryptocurrency CFDs function similarly to traditional CFDs, the market in which they operate is different, and as such, they require careful consideration. The cryptocurrency market is incredibly volatile and often defies the logic of traditional trading. So, it is advisable to conduct extensive research before investing in a cryptocurrency and develop a risk management plan that is in line with your investment goals.
Trading Crypto Assets
The concept of cryptocurrency assets is relatively simple. It is a type of digital coin that you buy on a cryptocurrency exchange and then stores in a cryptocurrency wallet. Among the most well-known examples of crypto assets are Bitcoin, Litecoin, and Ethereum.
In contrast with trading Crypto CFDs, trading Crypto Assets directly on crypto exchanges requires technical knowledge of cryptocurrency and its functions. Since cryptocurrencies are digital currencies running on public blockchains, they possess a decentralized nature and cannot be regulated by any central authority. It is up to traders to purchase and store cryptocurrency securely, which can be challenging for first-time buyers.
Traders must register with a cryptocurrency exchange or brokerage company and meet the KYC requirements to begin trading. Upon funding your account and completing a purchase, the crypto exchange will provide you with a hot wallet for storing your digital currencies.
Keeping cryptocurrencies in your wallet is risky since you might lose them all if the crypto exchange gets hacked. Creating a personal crypto wallet is the best way to store your tokens. Depending on your purposes, you can choose an online wallet, mobile wallet, hardware wallet, or paper wallet.
Cryptocurrency trading requires consideration of factors that influence price movements. The cryptocurrency market is affected by several factors like tokenomics (supply and demand characteristics of cryptocurrencies), coin supply, liquidity, utility, and market perception. The price of cryptocurrency shifts constantly in response to positive and negative news.
Trading Crypto Assets is Best for You If:
- You want to pay someone using Bitcoins or other cryptocurrencies
- You want to transfer cryptocurrencies to another person’s wallet
- You are interested in gambling at a Bitcoin casino
- You appreciate the technology and wish to own the asset
- You would like to be the only person responsible for your investment, with no third parties involved. (To do this, you must own and transfer your funds to a cryptocurrency wallet).
Cryptocurrency trading involves certain challenges that do not exist in traditional financial markets. Misplacing your private keys, for example, can result in the permanent loss of your investment. Crypto exchanges can also get hacked, and crypto regulations can change quickly, so they may temporarily freeze funds or shut down without notice. Due to these factors, most traders prefer trading crypto CFDs over crypto assets.
Crypto CFDs and Crypto Assets: Which is Best for you?
The decision to trade crypto CFDs or to invest in crypto assets is entirely up to you. You can choose whichever one works best for you based on your risk tolerance level, trading strategy, cryptocurrency expertise, and financial goals.
Trading crypto CFDs can be extremely profitable if you want to earn short-term profits without having to worry about storing cryptocurrencies in multiple crypto wallets.
If you want to trade crypto with an eye toward the long term, then investing in crypto assets probably makes more sense. If you decide to take this route, you will need to be tech-savvy enough to navigate cryptocurrency exchanges and manage your wallets carefully.
You can decide based on these factors:
- The amount of knowledge you have about crypto (and the amount you intend to learn)
- The length of your investment horizon (Short-term or Long-term)
- How much money can you afford to trade (you can trade CFDs even with a modest amount of money)
- What kind of trading platform you prefer (either traditional brokerage or cryptocurrency exchange)
- How comfortable you are with leveraged trading
By taking these factors into consideration, you will be better able to determine which is best for you among Crypto CFDs and Crypto Assets. Regardless of your choice, be sure you thoroughly research the investment method you intend to engage in and be careful not to invest more than you can afford to lose.
Looking for the Most Stable Cryptocurrency?
Unlike the highly volatile cryptocurrencies like Bitcoin, stablecoins like Tether or USDT are grounded in reality and have all the benefits of cryptocurrency without its distressing price fluctuations.
Launched in 2014, Tether (USDT) was one of the first cryptocurrencies pegged to the US dollar. With a market cap of over $68 billion and a value of $1, Tether was among the top 10 most traded cryptocurrencies in 2021.
Among the first stablecoins to appear in the crypto marketplace, USDT is considered the first dollar-backed cryptocurrency. The main purpose of Tether is to allow anyone to easily store, receive and send US dollars in a digital format.
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