Traders have several choices to trade cryptocurrencies like Bitcoin, Litecoin, Ethereum, etc. They can do cryptocurrency trading in two ways.
- Regular cryptocurrency purchase and sell
- Cryptocurrency CFD trading
Both work in same way and offer long/short positions. Yet, they need to be used differently after considering the market behavior and trader’s personal preference. CFD [contract for difference] means you buy the rights to receive difference between current asset value and your predicted future prices but the speculation needs to be correct. If trader’s prediction is wrong then losses will be similar to potential gains.
CFD Trading Is Best for Short Term [According to Some Traders]
CFDs need to be treated as investments instead of trading instruments. You will be charged interest on total contract amount, if CFD position is held for long term. In addition, cryptocurrency CFDs boast low spreads in comparison to regular cryptocurrency trading. Considering the speculative instrument nature, lower spread will allow traders to open positions and get the most out of less price movements [minute-to-minute or hour-to-hour]. Short term trading helps to limit financing cost. This means, you don’t need to calculate profit needed to balance interest charges.
Long-term CFDs must not be overlooked, especially with low interest rate opportunity. Traders need to consider the trend and then ride as long as possible.
CFD Crypto Trading Is a Multiplier
Multiplier is a factor that offers an opportunity to control position, which is bigger than the money you invest. It can be set at x3, x5, x10, etc. If you invest $100 with x3 then the profit you earn or losses you suffer will be calculated on the basis that you control a position worth $2000. However, this multiplier needs to be applied carefully as unpredicted price fluctuations can totally destroy the position.
Cyrptocurrencies Buy and Sell Is an Investment [Long Term Position]
Long term positions for buying and holding is popular strategy worldwide traders are adopting. Its popularity is understood with the way Bitcoin and Ether price escalation of 140% in just a couple of months. For regular cryptocurrency transaction spreads are very high in comparison to crypto CFDs. High spread is annulled with substantial value increase and comparatively low number of trades. Therefore, this approach is related with long-term investment rather than harnessing for short term speculation gains.
In addition, cryptocurrency transaction doesn’t involve multiplier use, so it is less risky than crypto CFDs. Trader cannot lose all his invested funds, unless the crytpocurrency purchase price hits dollar zero. The short-term price movements have little or no influence on the long-term positions. Just hold an open position to avoid temporary collapses and patiently wait for price to rise again.
Stop Loss and Take Profit Orders
Both instruments let the use of stop-loss orders and take profit order. The options are handy in highly volatile and unpredictable cryptocurrency market behavior. Take Profit Order [T/P] means trader does not have to be concerned about second-guessing or manually executing the trade. T/P orders are executed at best possible prices irrespective of underlying assets behavior.
Stop loss order allows to minimize possible losses, which allows trader to withdraw remaining funds as soon as price level reaches pre-determined level.
It is not easy to sell certain cryptocurrencies. However, with crypto CFDs you can enter and exit a position spontaneously because you don’t own the underlying cryptocurrency. You can make use of money management tool like T/P and stop loss orders to exit, at pre-determined levels.
Which Is Better?
A debatable question but both instruments if employed with care can offer impressive results. Particularly, when you consider the growth probability and high volatility related to cryptocurrency market. Make sure to use short or long-term strategies, during suitable market cycle.