- Trading cryptocurrency CFDs offers an opportunity to speculate on the value of crypto assets without having to hold these assets outright
- However, you should be aware that a handicap of trading cryptocurrency via CFDs is that traders have to shoulder the bid/offer spread on entry and exit of a CFD
The growing popularity of cryptocurrencies has given birth to alternative ways for this asset class to be traded. One of the means that has been gaining traction is trading via contracts for difference (CFDs).
CFDs as a trading method for cryptocurrencies became widely known in 2017, when the value of Bitcoin skyrocketed to more than $19,000 from roughly $1,000. Cryptocurrency CFD trading is an opportunity for retail traders to enter a market that has exploded in popularity and, in some cases, became too expensive and complicated for many investors to access.
Trading cryptocurrency CFDs offers an opportunity to speculate on the value of crypto assets without having to hold these assets outright, manage a crypto wallet, or pay related blockchain-based transaction fees. Cryptocurrency CFDs are popular among traders who want to capitalise on price movements without having to deal with these technical processes and their associated security and storage issues.
However, you should be aware that a handicap of trading cryptocurrency via CFDs is that traders have to shoulder the bid/offer spread on entry and exit of a CFD, which can lessen the potential to profit from small moves. In saying this, cryptocurrencies can be highly volatile assets, with huge price movements being a common occurrence. In saying this, Cryptocurrency CFDs are not tradable over the weekend, which means investors should observe the risk of holding a trade over the weekend when the price of cryptocurrencies can change drastically.
A major difference between buying and selling cryptocurrency outright and trading Cryptocurrency CFDs is access to leverage, with the latter being a little easier. Yet, as more platforms start offering cryptocurrency CFD trading, regulators are becoming more attentive to the risks that come with leverage trading, prompting the imposition of regulations to minimise the risk that this investment method harms inexperienced investors. For example, in Australia, the national financial regulator reduced the CFD leverage available to retail clients in 2021. In order to protect our clients, we have implemented a restriction on the leverage available on cryptocurrency CFDs to 1:2.
