18 Feb 2022 · 3 min read

CFD Trading: Potential Profits or Just Too Risky?

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If you’ve heard about CFD trading, you have probably also heard all the warnings that come with it—along with the promises that can sound very enticing and like nothing serious can go wrong. But how much do you know about CFD trading anyway? In this article, we’ll go back to the basics, explain the pros and cons of using it, and (of course) let you know where you can get started CFD trading, if you decide that this is a good type of trade for you (hint: it’s PrimeXBT). 

Back to Basics: The Short & Sweet on CFD Trading 

CFD is actually short for contract for differences. This is a type of instrument that does not require you to hold the underlying asset in order to profit off its price movements. The difference between the starting price and the closing price is cash-settled, which means that there is absolutely no exchange of other assets or physical goods. If you think an asset’s price will move upwards, you will buy that contract; if you believe it will go down, you sell an opening position. Either way, if you’re right, you pocket the change between the opening and closing price. 

Pros 

Some of the benefits of CFD trading are obvious: they’re quick and not at all time-consuming, especially when it comes to trading assets that take some time to settle. Since there is no exchange of actual assets (or even their derivatives, as those can also be traded as CFDs), traders can quickly move on to new trades once their old ones are completed in order to quickly take advantage of the ever-changing market. CFD markets also have lower capital requirements than most other exchanges, and they tend to be traded on margins, which can amplify the trader’s profits. There are also very few, if any, fees related to CFD trading as there is no asset movement that needs to be paid for.  

Cons 

On the other hand, CFDs are notoriously risky. They’re considered an advanced trading instrument and are actually forbidden in some parts of the world, including the United States, with the aim of customer protection. Additionally, if the underlying asset tends to experience price volatility on a regular basis, the spread on the bid and ask prices can be significant, which can result in decreasing the number of winning trades and increasing losses. This also prevents traders from profiting off the small price movements that many are counting on when they first start trading.  

Additionally, we’ve mentioned that the fact that many CFDs are traded on margin can amplify gains—this is, expectedly, a disadvantage as well, as it amplifies losses too. If you hold a trading position you may get a margin call, which means that your broker requires you to deposit additional funds into your account. 

CFD Trading at PrimeXBT 

At PrimeXBT, customers who want to dip their toes in CFD trading have to open a special CFD trading account. The trading account balance is denoted in bitcoin (BTC), and is secured with mandatory address whitelisting and two-factor authentication, as well as bank-grade security. The minimum deposit is BTC 0.001 (around USD 44 at the time of writing), and once you complete that, you’re ready to start trading.

Of course, PrimeXBT urges their users to develop a trading strategy before going all in, as their UI is very well suited for technical analysis required for this. After you’re sure you know what your steps are, you can begin trading. Remember never to bet more than you’re willing to lose (and cover the margin!), and happy trading!

 PrimeXBT has prepared a special offer for their new customers: they will get 50% of their first deposit credited to their account as a bonus that can be used as additional collateral to open positions!

Don’t forget to join PrimeXBT community on Telegram!