Crypto CFD trading
Cryptocurrency's market cap is expected to exceed $7.5 trillion by 2025, making it the world’s biggest financial market. This is the main reason why many traders prefer to invest in crypto because of its autonomy and high profits.
Unfortunately, most stablecoins, like Bitcoin, are generally quite expensive. This can be discouraging for investors, but thanks to CFD trading you can still benefit from their volatility. Read on to find out how.
What is CFD Trading?
CFD trading is a unique method that lets investors trade financial assets without purchasing them. They are derivatives that let you trade price movements of financial assets. And they offer traders diverse asset classes, making it a perfect hedging method.
Most brokers offer CFD traders thousands of markets to trade, including cryptos, forex, indices and shares.
CFD Trading for Beginners
Unlike trading shares, CFD trading can be a perfect option for beginners with low capital. As aforementioned, the most stable assets tend to be quite costly. However, with CFD, you can take advantage of leverage trading.
With margin trading, you’re exposed to the benefits of the asset’s full value while paying a small percentage. This can magnify your profits, but it can also increase your losses without proper risk management strategies.
Therefore, it is recommended that you use a demo account to perfect your trading plan before investing cash.
CFD Day Trading
With this strategy, CFD day traders profit from small, frequent price movements, which can eventually add to a significant profit.
Since they must track the charts meticulously, traders focus on technical analysis and price action. This means they dismiss the most fundamental factors that can affect the market.
CFD Position Trading
This strategy closely resembles the purchase-and-hold approach. Position traders focus on long-term trends and hold positions for several weeks. With this strategy, you must ignore minor price actions while relying on fundamental analysis.
CFD Swing Trading
Swing trading is popular among full-time employees who still want to invest in financial assets. That’s because it doesn’t require sitting behind your computer all day. Swing traders have been known to hold positions for more days than day traders, but less than position traders.
The system involves investors opening positions at the top or bottom of the previous market price movement. Consequently, swing trading can generate huge profits during a recovery. You have to be disciplined and patient to hold the trade for a few days, whilst ignoring temporary market volatility.
CFD Risk Management
Margin trading can be quite lucrative. Unfortunately, it can magnify your losses. Thus, your trading plan should include a reliable risk management technique. To curb your losses, you should use a stop-loss order.
This feature can come in handy when the market goes against you. So, you should make sure you risk the amount that you can afford to lose. It’s also crucial that you know the right entry and exit times. Doing so will help you maximize profits and cut losses.
CFD Trading Instruments
Brokers offer traders a wide range of trading instruments traded globally as CFDs. This grants traders hundreds of profitable trading opportunities. Some of the most popular CFD trading instruments include:
- Forex Trading: This asset features three major groups of currencies – exotic, minor, and major. The major pairs are GBP/USD, EUR/USD, and USD/JPY. Exotic pairs are USD/THB, USD/ILS, and USD/RUB. Some minor pairs are GBP/JPY, AUD/NZD, and EUR/GBP.
- Shares: Brokers offer a wide range of CFD shares, including Tesla, Amazon, and Apple, for trading.
- Cryptocurrency: The popularity of these coins has caused brokers to introduce hundreds of crypto CFDs.
- Commodities: Available commodities include copper and oil.
- Precious metals: Silver and gold are prevalent CFD instruments.
Advantages of CFDs
- Leverage Trading: With CFDs, you can stretch your equity with leverage. You only need a small percentage of the asset’s price to open a trade. Leverage trading can also amplify your profits.
- Go Long or Short: You can benefit from upward and downward-moving markets.
- Trade a Wide Range of Markets: CFDs introduce traders to over 17,000 markets, including 13,000 shares.
- No Stamp Duty: Since you won’t buy the shares, you won’t have to pay any stamp duty.
- Hedging Other Investments: You can hedge all your existing trades using CFDs. Plus, the fact that you can leverage CFDs makes them popular among experienced traders.