Cryptocurrencies are one of the latest additions to the world of market trading. Their volatile nature and significant media coverage have made them an instant hit amongst day traders and serial investors. Within their short existence, coins like Bitcoin, Ethereum, and Litecoin gained traction across global markets, and are today traded through various financial instruments.
Bitcoin CFDs are one of the most popular investment instruments, and are available across Bitcoin trading platforms. If you want to learn more how CFD work and learn how to trade CFD you can read the ultimate guide to cfd trading realized by Cryptimi.
What are Bitcoin CFDs?
A Contract for Difference (CFD) is a tradeable agreement that lets investors invest in an underlying asset without actually owning and storing the asset. CFDs are just one of several derivative financial instruments and are particularly popular amongst assets which experience high volatility.
In some cases, CFDs are actually used to ultimately purchase the underlying asset, thus allowing the hedging of risk. However, the majority of CFDs traded on open markets are purely speculative in purpose.
Bitcoin CFDs are just another variant of this financial instrument. By buying and selling contracts rather than coins, traders are able to process transactions faster and cheaper. Furthermore, they do not need to worry about safely securing their coins in wallets until they are sold.
Moreover, by opting to invest in Bitcoin CFDs, investors are able to short sell cryptocurrencies if they believe their price will drop in the future. The majority of Bitcoin trading platforms even provide leverage when CFD trading, making it possible for you to open larger positions than your capital allows.
How to Trade Bitcoin CFDs in 4 Easy Steps
Different Bitcoin trading platforms require you to follow specific instructions in order to invest in Bitcoin CFDs. However, while each platform operates differently, the general steps you would take are similar.
- Open a trading account – Before you can start trading you will need to register and verify your trading account. Depending on your country of residence and trading volume, you may be required to provide identification documents and other personal information. Reputable Bitcoin trading platforms require these details in order to comply with Know Your Customer (KYC) regulation and best practices.
- Deposit your funds – In order to buy your Bitcoin CFDs, you must first deposit funds into your account. Once again, the payment options vary greatly between platforms, but you will usually be able to choose between card, bank transfer and eWallet payments. Some of the best sites, including the eToro trading platform, support a wide range of payment methods, which include PayPal and mobile payments.
- Select the asset/pair – Go through the platform’s supported assets and decide which one or ones you would like to trade. Each asset might have its own trading restrictions, such as a limit of volume.
- Decide whether to go long or short – Trading Bitcoin CFDs means you can either go long if you believe the price will rise after your purchase, or go short if you believe it will dip. This is one of the best features of trading Bitcoin CFDs – you can profit both when the markets rise and also when they fall.
Before you set off trading Bitcoin CFDs it is a good idea to make use of educational resources available at the best trading platforms. Depending on the particular platform, you will be able to access demo accounts, charting and analysis tools for historical data, and even video tutorials.
Best Bitcoin Trading Platforms
Although there are several Bitcoin trading platforms on the Internet, there is a handful which stands out above the rest.
eToro is a global CFD trading platform which has existed long before the creation of Bitcoin CFDs. Using one platform you can trade in a variety of markets using several instruments, and their fees are also very clear. Apart from supporting an extensive range of tradeable coins, the eToro trading platform lets you automatically copy successful traders, thus benefitting from their expertise. The platform is very easy to use and available on mobile, whilst the eToro group and its subsidiaries are regulated in several jurisdictions around the globe.
As a trading platform which solely offers CFDs, Plus500’s platform is solely designed to cater to CFD traders. Before trading with real money, Plus500 gives you the opportunity to test your strategies using a demo account. The platform also provides extensive historical and educational data to teach you how to trade Bitcoin CFDs. Plus500 offers a competitive and transparent fee structure and accepts a variety of payment methods, including PayPal.
Another great Bitcoin trading platform if you’re looking to invest on the go is AvaTrade. Available across mobile devices and supporting all major operating systems, the AvaTrade trading platform gives you access to some of the most popular cryptocurrency CFDs. The regulated platform also offers a convenient demo account and gives you access to help and support sections, where you can learn how to trade Bitcoin CFDs and see historical data for supported coins.