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Cryptocurrency CFDs

What are Cryptocurrency CFDs?

CFD stands for Contract for Difference. A CFD is a financial instrument that gives traders exposure to price movements of an underlying asset (such as gold, bitcoin or shares), without the trader needing to hold the physical underlying asset.

CFDs are available for thousands of assets, covering commodities, cryptocurrencies, local and international stocks, ETFs and more.

Cryptocurrency CFDs give traders exposure to the price of cryptocurrencies without needing to hold cryptocurrency. For example, if you buy ethereum CFDs, you will profit if the price of ethereum increases, or incur a loss if the price of ethereum decreases, without ever actually holding ethereum.

Traders can buy and sell cryptocurrency CFDs from reputable CFD exchanges such as Plus500. Plus500 offers CFDs for several cryptocurrencies, including Bitcoin, Ripple, Ethereum, Litecoin and several others.

Problems with Cryptocurrency Exchanges

It might seem like the most natural way to trade cryptocurrencies is to use a cryptocurrency exchange. Which crypto exchange should you choose? A sleek trading platform, flashy marketing and good reviews say almost nothing about the security of a cryptocurrency exchange.

There have been countless examples of cryptocurrency exchanges having their customer funds stolen in hacks, and other examples of exchanges being outright scams.

Example of a Cryptocurrency Exchange Hack
Consider Liquid, a major Japanese exchange hacked in August 2021 resulting in $90 million of crypto stolen. Fortunately Liquid was able to withstand this blow, but many other exchanges are not so lucky. This list of cryptocurrency exchange hacks offers countless other examples (or Google "list of cryptocurrency exchange hacks").

Example of a Cryptocurrency Exchange Scam
Some cryptocurrency exchanges can be outright scams. QuadrigaCX was Canada's largest Bitcoin exchange. In late 2018, customers began to notice that they couldn't withdraw funds. Weeks later it was announced that the company's founder had died during a trip to India whilst suffering from bowl problems, possibly exacerbated by the exotic spices of the subcontinent. He took around 26,350 BTC of customer funds with him to the "after life", which could very well be somewhere in Saint Petersburg. He was the only person in the company who could authorize access to customer crypto. As mentioned earlier, the sleekness and popularity of a cryptocurrency exchange is no indication of its trustworthiness.

Once crypto has been stolen, it can be extremely difficult to track down the perpetrators and recover the funds.

When you trade, you entrust your hard earned funds with an exchange. It is important to know that the exchange is reputable and regulated, which basically means the exchange is watched over by government bodies who ensure the exchange handles your funds sensibly. Most cryptocurrency exchanges are not regulated.

What are the Advantages of Trading Cryptocurrency CFDs?

With cryptocurrency CFDs, neither you nor the CFD exchange handles crypto. You gain similar price exposure without the risk of a crypto hack hitting the exchange. Furthermore, many CFD exchanges are regulated in the countries in which they operate. For example, Plus500 is regulated in major jurisdictions including the UK, Singapore, Australia and several other countries.

Short Selling Crypto
If you think the price of a cryptocurrency will fall, you can benefit from this by short selling the cryptocurrency's CFD.

What are the Disadvantages of Trading Cryptocurrency CFDs?

With CFDs you do not own the underlying asset. This means you are not able to deposit or withdraw cryptocurrency with a CFD exchange.

What else should I know about Cryptocurrency CFDs?

CFD exchanges let you trade on margin. This means borring to trade, which can amplify gains but can also amplify losses. For example, consider trading Bitcoin on margin.

Trade Cryptocurrency CFDs

After careful evaluation of several CFD exchanges, we recommend Plus500 for their
CFD Service. Your capital is at risk. 77% of retail investor accounts lose money when trading CFDs with Plus500. CFDs are innovative and can generate wealth, but as with all financial instruments, it is important to understand the risks. It is advisable to have a strategy and keep a level head. Plus500 offers a demo account with free virtual cash to practice trading and refine your strategy.

New to trading with Plus500?
Trade free virtual cash on a Plus500 demo account

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