Cryptocurrencies can be traded in multiple ways, but there are only two that stand out the most. Regular crypto exchange trading and Crypto CFD trading on various broker platforms.
No matter how you look at it, it becomes very interesting as to what are the key differences between these two trading strategies, and why do so many traders opt for crypto CFDs rather than actual cryptos.
It is also important to determine which one carries the most advantages and benefits for the user. Let’s try to differentiate these strategies and outline the key features traders go for them
Table of Contents
Margin trading is one of the key characteristics of any Forex or CFD broker. All of them provide this option not only with currency pairs but with stocks and cryptocurrencies as well. But it’s still very hard to believe that conventional trading platforms would feature anything as controversial as cryptocurrencies.
Cryptos were always being laughed at by traditional financial market traders right? So why are they adopting it now? Well, the main reasons why people avoided cryptos in the past was the risk involved. Most crypto exchanges didn’t have the option to use leverage and increase profits in the long-run, which made them trade with their own money.
In fact, it took quite a long time for brokers to start seeing the profit in cryptocurrencies. According to this IQ Option user review we found, the brokerage was one of the first to quickly add cryptos such as Bitcoin and Ethereum as tradeable CFDs, and the traders found something completely from crypto exchanges different when they first entered the platform.
Overall, leverage quickly became the sole reason why people started transferring to crypto CFDs, which offered them x100 the amount they would trade with on crypto exchanges. Some exchanges are indeed starting to implement it, but they’ll most likely never have it on a level that CFD brokers had it. It was not unheard of to see a 1:100 leverage with a broker, which turned many people’s $100 investment into $10,000, earning them thousands as profit.
You see, one of the largest differences between cryptos and crypto CFDs is the ownership. This means that those who trade regular cryptos are actually owners of the asset and keep them stored on a digital wallet somewhere. While those who trade crypto CFDs are just speculating on the price while not owning a single coin they invest int.
All that guarantees cryptos is the contract that investors purchase on them. That’s the abbreviation of CFD (Contracts for Difference). The contract shows at what price point the investor “bought the coin”. Later, when the prices are higher these investors can sell the coin.
One of the primary disadvantages of not owning cryptos is the fact that you don’t have mobility with them. For example, a crypto investor would be able to transfer at least some part of his or her assets to online services, various payments or just on a different platform, while also utilizing Blockchain’s fast transaction systems.
But crypto CFD traders can only rely on withdrawing funds from the platform, while not participating in the blockchain whatsoever.
The nature of crypto CFDs is similar to any currency pair on a Forex trading platform. If you want your position to be opened for more than 24 hours, then you will have to pay a fee. Withdrawals also come with fees. According to Forexnewsnow.com, around 2 or 5% of the traded amount goes to fees while trading CFDs of any kind, not only cryptocurrencies.
Regular crypto investors, however, don’t have to pay fees to keep their positions open, in fact, they can just store their coins on a wallet and wait out a bear market, seemingly forever.
You’ve probably noticed a point about fees on 24-hour positions. Yes, CFD trades have deadlines on them that the platform sets on them. The extension of that deadline costs a small fee, but seeing how important it is to have your trades open in a volatile market as long as possible, it can quickly spiral into hundreds of dollars spent on just extending the deadline.
Furthermore, much like any other margin trading platform, if your trade goes below the available margin, you’ll get a margin call and the trade will be closed. Which is pretty inconvenient as the crypto market is unpredictable and a massive nose-dive in prices can immediately be followed up by a bull rush.
For cryptos, as already mentioned, there is no time limit, you can sell and buy your coins whenever you want.
Investments & Variety
When people invest in a new cryptocurrency, they sometimes don’t realize that they’re buying a part of the company. Not every crypto has this option but there are lots to choose from. By investing enough, crypto traders can actually affect the price. They can force it to go up and down, by selling most of their stock or holding onto it during a bull rush to increase the price. Furthermore, they get a seat at the investors’ council to decide what path the company should take in the future.
Crypto CFD traders don’t get this opportunity as they don’t own the coins they purchase. In fact, there are no available CFD options on such cryptos. Which leads to the next disadvantage, the variety of coins available with CFDs.
On a large crypto exchange like Binance, you’d have access to pretty much every coin in existence, but with a CFD broker, you’d be able to trade about four or five coins. They usually feature Bitcoin, Ethereum, XRP, Litecoin and maybe EOS.
The Bottom Line
Overall, both of these trading strategies come with advantages and disadvantages. All it takes for a trader to decide which one he or she prefers is to outline his or her priorities.
Is he/she a day trader? Well, then maybe it’s best to go for crypto CFDs as there’s leverage and its possible to avoid fees with day trading.
Is he/she an investor? Well, then it’s best to go for original cryptocurrencies as they can be kept safe during a bear market and used as company shares in the future.
Overall, it’s best to say that the strategies are evenly split.