Why use a Forex broker to trade CFDs on cryptos?
Disclaimer: The text below is a sponsored article that was not written by Cryptonews.com.
A CFD is a financial contract between you and your broker, allowing you to exchange with the latter the price difference of an underlying asset between the opening and closing price. When trading CFDs, you do not hold the asset that you’re investing in, you’re essentially just betting on the price of that asset increasing (or decreasing).
CFDs on cryptocurrencies are a trendy new leveraged product, allowing you to use margin trading to increase your exposure to the cryptocurrency market, without owning any crypto-currency or having to store them in a wallet. Margin trading implies that every time you want to open a trading position on Bitcoin or any other Altcoins, you first need to put aside a fraction of money for this position. This money is called “margin”.
What are the most important advantages to trading cryptos with a CFD Forex broker?
One of the greatest advantages of trading cryptocurrencies with a broker is that you do not need to own the tokens to make money in this market. You can simply invest in crypto-CFDs to profit from market price changes in a safe and regulated environment.
With CFDs, you can also make money regardless of the direction of the crypto-currencies. You can take advantage of rising prices (with “long” trading positions) as well as falling prices (with “short” trading positions).
Finally, by using CFDs, you can achieve higher returns on the crypto market with smaller initial trading capital, thanks to leverage. You can thus profit from small market movements and greater market exposure, as price fluctuations are amplified.
With leverage and margin trading, CFD trading on cryptos allows you to invest more money than the amount you have in your trading account
Thanks to this leverage, you will be able to take advantage of amplified crypto-market movements. However, it also means that you can suffer greater losses if the market goes against you.
For this reason, it’s extremely important to apply rigorous risk and money management rules when you’re trading cryptos via CFDs to be successful in the long term. Crypto trading via Forex brokers is a great way to manage risk properly. You can use money management tools via robust and powerful platforms through a safe trading environment.
How can you better manage risk when trading CFDs on cryptocurrencies?
Leverage and margin trading are essential to your trading success, but they can be risky if not used properly. Here are a few rules to add to your trading plan to more fully manage your risk and protect your trading funds:
1# Only trade with money that you do not need
2# Always use stop-loss and take-profit orders, setting your risk/reward ratio to a minimum of 1:2
3# Try to invest less than 2% of your total capital per trading position
4# Do not increase the size of your position as soon as it becomes profitable
6# Have a break after a big winning/losing streak
6# Control your emotions
8# Keep consistent with your money and risk management rules
Is crypto-CFD trading right for you?
You might consider trading cryptocurrencies via CFDs if:
- you don’t want to own or manage the tokens yourself
- you’re looking for a multi-asset platform where you can trade different markets in addition to cryptocurrencies
- you want to take advantage of both rising and falling markets
- you want to hedge or diversify your investment portfolio
- you have time to dedicate to the markets
- you have a high tolerance for risk
- you enjoy making quick profits (CFD trading is best for scalpers and day traders)
Now you understand why leverage-based instruments like CFDs are complex financial products, which aren’t suitable for every investor. If used properly, however, leverage and margin trading to trade the crypto-market can definitely help you make the most of it.
Just remember to always control and mitigate your risk though a rigorous risk and money management strategy that fits your trading style, your financial goals and your trading capital.