If you’ve not followed financial news for the past few years, cryptocurrencies are digital currencies that you can trade anonymously. In recent months, more and more traders have begun to trade in cryptocurrencies due to their volatility – or perhaps because they work well as a hedge against inflation.
In this article, we will describe how you can start trading cryptocurrencies. We will focus on CFDs because there is a lot of speculation in the crypto space. Also, unlike buying cryptocurrency directly, CFD trades allow you to make money even when prices drop, thanks to your ability to place Stop Loss orders.
How does it work?
Many people compare investing in cryptocurrencies to the Wild West. Many people began investing in cryptocurrency mining operations, buying Graphics Processing Units from Nvidia or Advanced Micro Devices and installing them in their homes. Once they became profitable, some of these people started to rent warehouses to house many GPUs and make lots of money.
Other people prefer to stay on the sidelines and trade cryptocurrencies with CFDs – contracts for difference – which allow you to profit from price drops and increases without owning any cryptocurrency.
Contracts for Difference work as follows: A trader wants to buy Bitcoin at EUR/USD 1,200 but is afraid that its value will drop before he can sell it off. He then buys a CFD contract with a lower strike price (1,100 USD), compensating for the difference if Bitcoin’s price drops. On the other hand, if Bitcoin’s value rises above 1,200 USD, he will lose only the initial investment in the CFD contract.
The same rule applies when trying to sell Bitcoins – traders who buy Contracts for Difference with prices slightly higher than the market price will be compensated by the difference if they decide to sell them. It is important to note that even if you choose not to hold your position overnight, it is still possible to earn money on cryptocurrency CFDs. Simply enter a Stop Loss order below your purchase price and wait until it gets executed. If you are trading with a reputable broker, you can set up Stop Losses for free.
Advantage of cryptocurrency CFD trading
Another advantage of trading cryptocurrencies with CFDs is that you don’t have to wait 30 days to process an order. It is the amount of time it often takes when withdrawing money from fiat currency accounts in cryptocurrency exchanges. It should be noted; however, that withdrawal limits are much lower when using CFDs, although this might not matter if all you want to do is trade CFDs on Bitcoin here and there. If you want to buy Bitcoins or other cryptos directly, check out our guide to choosing a Bitcoin exchange.
How can I get started?
The first step is signing up for a CFD broker. There are many of them out there, but we recommend AvaTrade because they have been around for over a decade and have the top-tier technological infrastructure. They also offer competitive spreads on cryptocurrency pairs, which is crucial when you trade with CFDs.
The next step is opening a trading account and depositing money – you don’t even need to fund your account with real cash if you want to use the demo version! But note that not all exchanges accept credit card payments, so it might be worth checking out our guide on where to buy Bitcoin with a credit card or debit card first.
After that, you can start from the beginning by configuring your preferred cryptocurrency trading conditions. As mentioned above, pay close attention to Stop Loss orders and take advantage of free CFDs!
What are you waiting for? Try it out here and start trading cryptocurrencies with CFDs today!