Finance Blog

CFDs provide all the benefits and risk without owning the commodity.

Commodity trading is highly risky and speculative. But following some simple rules can reduce the risk factor. The cryptocurrency market is more volatile and speculative than the traditional capital and bond market. And cryptocurrency emerges and disappear in no time. Altcoin, which is popular crypto nowadays, may not exist after a few months or years. In other words, traders who hold these cryptocurrencies may lose all the worth.

Research before you open an account.

You must read reviews and does some research before you open an account in Crypto Exchange. New products and cryptocurrencies emerge every day and fade out in a short time. So finding a reliable, experienced exchange is crucial. There are many forums that publish relevant reviews, information and advice about crypto trading and exchanges. You can place your trade through a broker or exchange, but there are other available options.

Contract for difference (CFDs)

Contract for difference (CFDs) is such an option. CFDs are a financial instrument that allows you to predict price movement than owning a cryptocurrency. It is a contract between two parties to agree to trade on a particular commodity. The settlement price is the difference between the opening and closing price of the contract. The difference is cash-settled, as no physical delivery of the commodity is involved. CFDs allow you to trade in the price trend of the cryptocurrency. It is a derivative instrument, and the price is derived from the underlying assets.  As a CFD trader, you can bet on both upward and downward movement of the cryptocurrency if you expect an upward movement long a CFD contract if you assume the opposite trend short an open position.

Select a legitimate CFD broker who complies with the law and regulation of the land. Brokers operating under the jurisdiction of financial regulatory bodies offer a shield of protection to your investment. As CFD are over the counter trade through a network of brokers and not through major exchanges, the role of the broker is imperative. A regulated, reputable broker keeps the fund in a segregated bank account to facilitate compensation if the concerned broker becomes insolvent. A regulated broker or cryptocurrency exchange spells out any applicable transaction fees, which is not always germane to an unregulated broker or exchange.

Many reputable brokers allow you to access risk management tools to diminish the potential loss. Stop loss is a handy tool that limits your loss if the trade moves against the market trend. CFDs, like other derivative instruments, come with high risk due to leverage. Most of the retail traders (between 53 to 89%) lose money trading with CFDs. CFDs provide all the benefits and risk without owning the commodity or take physical delivery of the crypto.

Stop and think

Before you take trades, stop and think; a breathing space can save a lot of treacherous trades. Before choosing a Crypto Exchange, check the credentials, reputation, and history of the firm. Seek the help of financial experts and government agencies before you start trading in cryptocurrencies before opening an account, clear any doubts and risk concern. Discuss the commission, restrictions and timeframe regarding trade contracts and about the payout process.

Comments are closed.