What is CFD Trading?
Contract For Difference or (CFD Trading) occurs when trading is performed by a third party broker to make the actual trade-in the cryptocurrency assets without the individual taking ownership of the actual asset. This has become one of the world’s foremost financial activities. The new field of trading volatile digital assets is being seen by many to be the new frontier of the financial world.
Many problems have surrounded cryptocurrency trading. This is because the new field has faced several challenges. Its adoption is already growing. It will take a couple of years for cryptocurrency trading adoption to go mainstream.
Cryptocurrency Markets are Volatile
The volatility of the cryptocurrency markets has been a subject of concern to many people.
Price stability for Bitcoin and the altcoins have become a big problem. As such, trades get lost and profits as well. This has also given rise to the notion that the cryptocurrency markets can’t be traded successfully.
Many beginner cryptocurrency traders still don’t get it: volatility rules in all markets. It is because of this phenomenon that cryptocurrency digital assets are the fastest growing assets in the history of mankind.
Volatility itself is the core driver of growth for any asset class. The higher the volatility, the higher the chances of upward movement of the digital asset. This is one of the reasons that experienced traders are making huge profits.
Trader’s Lack of Knowledge About Cryptocurrency Markets has Led to Losses
Just like in any other market, the lack of knowledge of the cryptocurrency markets can lead to trading losses. In the crypto space, one must conduct both fundamental and technical analysis. The difference between the analysis of the markets and regular markets is the high degree of specialization that the trader must possess.
Many cryptocurrency traders lose in the markets because they don’t do their research. This has led to many believing that the cryptocurrency markets can’t be tamed. That is a lie and proper research creates profit-taking opportunities.
With proper research into the right markets, cryptocurrency traders can make decisions based on facts. These facts can either be empirical, political, situational, corporate, and so on. When the right information is available, such trades become easy.
Most traders aren’t passionate about the crypto space. This is also needed if success is to be found in the cryptocurrency markets. This passion will lead to traders searching for greater knowledge of the phenomenons that are market makers.
Loose Government Regulation of Cryptocurrency Exchanges
Many Cryptocurrency exchanges have issues. Governments are yet to make their minds on how to regulate cryptocurrency exchanges. This has led to the development of a “cowboy” approach to regulation.
As far as this approach continues, the cryptocurrency markets will remain in a topsy-turvy state. The best way trades can get anything about this situation is to trade with fully regulated cryptocurrency exchanges and brokers.
This is because the cryptocurrency brokers and exchangers who are fully regulated play by the rules. Those who don’t have a lot of shady tactics that they play by.
Traders have to check the government jurisdiction of the cryptocurrency exchange that they trade on. This will allow for a batter trading experience.
Trade CFDs Rather than the Digital Cryptocurrency Assets
Contracts for differences (CFDs) are trading assets that deal primarily with the price differentials of such assets.
CFDs are derivatives that work with the price of their underlying asset. For example, the BTC/USD has to do with the price difference of the trading pair. If a trader places the trade at a predetermined higher price level prices must match the traders’ position else a commission is lost. The same thing happens is the trader does the same in the opposite direction.
The good thing about CFDs as instruments is that the ownership of the asset is not required to make a profit. The traders’ profit position is also improved. The liquidity required is to cover the trading position.
Profit margins are much higher than when owning the digital asset. There is also less risk in this regard. CFDs allow the trader to have total control over his or her trading activities without the need for constant conversion from one asset to another.
Several CFD brokers and cryptocurrency exchanges allow the trader to have access to several data feeds. If timed right, this can give rise to great arbitrage opportunities without the need for exposure to the assets themselves.
There are also fewer fees when traders use CFDs. CFD brokers collect a fixed premium per trade. This allows the trader to have higher levels of liquidity. This liquidity can be used to open new positions and leads to more profits.
With CFDs, the issue of volatility is settled. The volatility only has to do with price action and not price action on ownership of the asset. As the prices continue to move, the trader can gain from the movements.
Most cryptocurrency traders still want to own assets and trade them. The quickest way to profits in the crypto space is through the trading of price action. This can occur using CFDs.