CRYPTOCURRENCIES

To understand what exactly it means to trade CFDs on Cryptocurrencies, it is necessary to understand what CFDs are. By CFD, an acronym for Contracts for Difference, we suggest a form of derivative trading. It is possible to operate in a specific financial market (foreseeing its increase or decrease) without buying or selling the underlying asset. By "financial market" we mean markets in rapid and continuous evolution, such as indices, shares, Forex and commodities. When trading CFDs, you only trade the price difference without buying or selling the asset. The possibility of earning or losing money through this type of trading, therefore, depends exclusively on the outcome, right or wrong, of the forecast.

Trading on cryptocurrencies raises a persistent question: is it better to buy cryptocurrencies or trade through CFDs? The two operations, of course, have completely different structures. The first consists of buying a cryptocurrency (because you are convinced of its value) and keeping it in your wallet until you deem it appropriate. Just like a simple purchase of a stock. Trading with CFDs on cryptocurrencies, on the other hand, consists in taking a position on the price trend of a crypto against the dollar or another cryptocurrency. Basically, in the first case you buy or sell a cryptocurrency on a particular exchange that deals with digital coins. In the second case, you only work on the price variation of the cryptocurrency itself, outlining a much more flexible operation and allowing an outlay of more limited capital.

We have ascertained that there are two main types of trading on Cryptocurrencies. You buy or sell a cryptocurrency on a particular exchange that deals with digital coins in the first case. In the second case, you only work on the price variation of the cryptocurrency itself, outlining a much more flexible operation and allowing an outlay of more limited capital. Buying Crypto is a highly traditional way of investing. The coin is bought and held in the portfolio for a specified time in the hope of appreciation. The purchase and sale of Cryptocurrencies can be carried out through specific trading platforms or Exchanges (Exchanges are specific platforms for trading Crypto). The differences between buying Crypto and trading with CFDs on cryptocurrencies are many, and it is good to understand them in detail to understand the Pros and Cons of the two types of investments. Comparing these two types of operations has related advantages and disadvantages. Let's try to analyze them.

What are the pros of investing in cryptocurrency CFDs? The first is undoubtedly the possibility of trading in a two-directional way, therefore both up and down, consequently obtaining results both when you decide to focus on the upward trend of a crypto, and when you prefer to intervene on a downward trend. On the contrary, by buying a cryptocurrency and therefore not operating on the price variation alone, the gain is possible only when there is a positive trend in the virtual currency purchased. The second point in favor of this type of investment is related to the capital to be used. In trading in crypto CFDs it is also possible to allocate smaller capital, unlike the pure purchase which, with current market values, would require a higher financial commitment. A final advantage is always to operate on the market at a time level and very quickly.

While, on the one hand, the CFD trading on Crypto presents some tempting Pros for the investor, on the other hand, it hides some obstacles that should be known for a healthy and mature investment. The first disadvantage of crypto trading with CFDs is certainly that of the costs. Spread costs, overnight fees, and market data costs can adversely affect the final income statement. At the same time, trading in CFDs on Crypto has a high rate of risk, which is closely related to the volatility of cryptocurrencies. Digital currencies are subject to continuous variations, even significant at a percentage level. This means that you can earn but also lose huge sums of money, much faster than other investments.

In the direct purchase of crypto, low commissions are usually paid, mainly transfer commissions that have little impact on one's balance sheet (because usually, the investment is long-term). On the contrary, with CFDs, much higher costs are revealed. Spread's cost is usually higher than in other assets in the Crypto CFD environment and concerns the difference between the purchase price and the sale price. When you trade a CFD, you buy at the "purchase price" and sell at the "sell price." The difference between the two quotes is the Spread, which is the quote that the broker takes to allow the transaction. Another cost to consider in CFD trading is the Overnight Commission, which is a cost that is applied to each open position that remains open to the next trading day. These commissions do not have an excessive weight if taken individually but can prove to be expensive if it lasts for a long time. This is another element that highlights how CFD trading is ideally considered an operation to be carried out in a very short time. Finally, there are the Costs for Market Data. These costs vary from broker to broker and concern the commissions that those who trade must pay to obtain, in real-time, access to the main financial reports and the main information regarding global markets, indices, stocks, Forex, and commodities.

In trading with CFDs on Cryptocurrencies you do not buy cryptocurrencies but trade on the value change of the instrument. In this way, it is possible to invest upwards or downwardsto invest upwards or downwards through transactions that are defined as long and short in technical terms. The purchasing position (long) predicts a rise in the cryptocurrency price. On the other hand, the sales position (short) is acquired when the price forecast is down. If you choose the long, you gain when the value increases. If you prefer the short, you gain in case of loss in value. In the event of a price movement contrary to your choice, a loss is recorded. As with any investment activity, a crucial element is the detailed study of all those variables that could contribute to the variation of the price of a Crypto. No one can predict in detail the performance of an asset, even more so for cryptocurrencies which, as mentioned, are a very unstable and volatile market. In this context, Fundamental Analysis and Technical Analysis are two methids to be carried out before any action. Fundamental Analysis is the careful study of all the variables that can influence the trend of a Crypto in the future. The Technical Analysis is instead a report based on statistical data and reworked in graphic terms that analyzes in detail the trend of each asset over time, with the primary purpose of predicting their trend in the future.

All CFDs are defined as leveraged products because they are based on the concept of financial leverage. This mechanism was designed to allow investment with a minimalamount compared to the real value of the underlying, an ideal solution for those with lower amounts to use. Thanks to leverage, it is possible to open a position using, in percentage terms, only a small part of the asset's value. Simplifying, with leverage of 1:20, we could invest only 1/20 of the asset's value. In the case of a value of 2,000 euros, our investment could only be 100. Obviously, gains and losses go hand in hand with the leverage ratio.Here another essential mechanism comes into play: the Margin. In our example, the amount invested, e.g. € 100, represents the required margin. It should be divided into initial and maintenance margin. The second is a share frozen by the broker for its protection, while the first, the initial margin, is the one on which changes in the investment.