Knowing fully well that all these limitations are enough to discourage new entrants, traditional and crypto platforms have introduced an easier and less intense way of engaging with the crypto market. This trading mechanism incorporates the all too popular Contract for Difference CFD model, which does not entail traders to physically own crypto. In this article, we explore the workings of this trading strategy, how it differs from conventional crypto trading activities, and some of the things to look out for when choosing a platform that avails such services. Thereafter, we will introduce you to some of the top platforms in this crypto niche, as well as the research methodology that informed our choices.
What is CFD Trading?
A contract for Differences is a variation of trading mechanism that allows traders to capitalize on the fluctuations of the price of an asset without necessarily needing to own it. Hence, there are various types of CFD trades, and they range from forex to indices, gold, stocks, commodities, bonds, or ETFs. In each of these examples, traders do not need to own the underlying assets, but that does not stop them from capitalizing on its price movements.
The name “Contract for Differences” is derived from the fact that the profits and losses generated depend on the differences between the prices of the asset when a trader enters and exits the contract. Brokers are entities that facilitate CFD trades. They offer margin services, which allow users to improve their leverage and multiply their earnings. However, it is important to note that a majority of brokers in the CFD trading business setup spreads, which trades must exceed before they can qualify as being profitable. Spreads are disparities between the actual price of an asset and the price brokers allow traders to enter trades. Brokers buy assets at market price and offer it to traders at a higher price. These disparities account for the spreads between the actual valuation of assets and the value imposed on traders.
More importantly, the freedom to leverage one’s market position is another reason why traders have taken to CFD trades. Unlike the underlier market of tradable assets, brokers can choose to offer leverages that are as high as x100. With this option, traders can use borrowed funds to execute trades, so that their expected profits would exponentially increase. Nonetheless, you should note that just as profits multiply when capitalizing on margin services, the risks associated with this model of trading are enormous, depending on the leverage adopted.
What About Bitcoin CFD?
CFD trading is becoming more attractive to crypto enthusiasts as a result of the complex nature of crypto technology. While some traders have gone all out to understand the concept of bitcoin technology, subscribe to crypto exchange platforms, and set up bitcoin wallets, others have opted for a less hectic approach. With this strategy, a trader can bet on price fluctuations, and at the same time, do away with the rigorous processes entailed in owning bitcoin.
Also, it allows traders to quickly take advantage of signals and beat the volatility of the crypto market that often require that traders enter and exit trades as at when due. On the other hand, crypto traders who opt to trade bitcoin directly would have to put their cryptocurrency in exchanges’ hot wallets, which almost always expose them to hacks, to bypass blockchain network congestion.
To access bitcoin CFD trading services, you need to register with brokers that allow users to long or short bitcoin. Longing cryptocurrency is the same thing as betting of funds on the propensity of the price of bitcoin to rise. On the other hand, when you short bitcoin, you are betting against it – that is, you are certain that its price would fall. In essence, a majority of crypto CFD trading platforms offer services that allow users to either short bitcoin or go long.
Also, brokers offering CFD trades incorporate margin services that allow their clients to borrow money and boost their probability of earning more. All these features and benefits have come together to establish crypto CFD as a viable trading strategy. Nonetheless, note that risk multiplies whenever a trader opts to improve his or her buying power. Apart from this downside, bitcoin CFD traders contribute little or nothing to the crypto market since they do not physically trade or hold bitcoin. As such, we can say that CFD trading robs traders off the opportunity of being a part of a burgeoning market and contributing directly to the crypto narrative.
Moreover, spreads, earlier defined in this guide, also apply to crypto CFD trades. In other words, brokers implement spreads for each cryptocurrency they support, and traders ought to factor in the implications of these actions before opting for crypto CFD services. Note that your trades have to cover the cost of this spreads before you can even think of making profits.
The Types of Bitcoin CFD Trading Platforms
There are two major types of bitcoin CFD trading sites, and they are as follows:
Conventional CFD Trading Websites
These are platforms that have been in the CFD trading business way before adding the bitcoin CFD option to their service model. As such, they offer a variety of assets other than cryptocurrencies. Here, you can trade forex, major market indices, commodities, bonds, ETFs, or Stocks. This type of trading platform is attractive to traders that like to spread risks across various asset classes. Also, these platforms offer familiar researching tools, and users can deposit or withdraw their money in fiat currencies, which is perhaps the main reason mainstream traders dabble into crypto CFD trading.
Strictly Crypto CFD Trading Platforms
Unlike the conventional CFD trading websites, these sites streamline their operations to crypto CFD trading alone. Therefore, they allow users to deposit cryptocurrencies, as well as fiat currencies. Sometimes, we have those that only allow cryptocurrency deposits and withdrawals.
What are The Factors to Look Out for When Choosing a Crypto CFD Trading Platform?
The Type of Bitcoin CFD Trading Website
As mentioned earlier, there are two major variations of crypto CFD trading platforms, and each has its pros and cons. Therefore, you have to understand the workings of the trading site you are considering and the class it falls under. Note that one variation incorporates a universal approach to CFD trading, which allows users to easily switch between different types of trading options. And since they are conventional platforms, they usually support several payment methods, which bodes well for mainstream traders. On the contrary, the other variation is streamlined CFD trading websites that afford users a trading ecosystem dedicated to digital assets alone. Hence, you might only access crypto payment options on these platforms. However, in some cases, fiat currency deposits are allowed. Another difference between these two types of CFD trading platforms is that an average conventional broker has more experience than a strictly bitcoin CFD enabler.
The Legality of The Broker
Before brokers qualify to offer CFD trading to clients, they often need to comply with regulatory obligations and apply for licenses from commissions. In light of this, we advise that you research the legality of the crypto CFD trading platform in your location, its license, and the registration process it has adopted. Many a time, one of the regulatory requirements that these platforms must meet is Know Your Customer KYC and Anti-Money Laundering. You ought to research the type of Identity verification process the broker imposes, determine the length of the process, and decide whether you can go through with it.
The Reputation of The Broker
Another important factor is the reputation of the broker. Questions to ask here are: Has the platform faced any security threat in the past? If it has, how did it respond to the threat, and did it exhibit the level of competence that you would expect from an experienced broker? Also, it is imperative to verify that the broker tracks the prices of cryptocurrencies from reliable sources. Doing this will help you ascertain that the CFD trading platform that you are considering is a proven enabler of credible crypto CFD trading services.
The Security of The Website
Like all other trading platforms, bitcoin CFD trading sites must go the extra mile to ensure that users’ information and funds are not susceptible to attacks. Hence, two-factor authentication is one security feature that you should look out for. Also, do not compromise when researching the security track record of the platform. Ensure that the platform has a knack for taking every security threat seriously and constantly updates its sites and applications to introduce trending and reliable security protocols.
The Number of Cryptocurrencies Available for Trading
Needless to say, a majority of brokers would offer bitcoin CFD trading services, since bitcoin remains the most popular digital asset in the crypto market. While this is a given, CFD platforms that support other arrays of crypto CFD trading services avail the opportunity to distribute risks. Hence, we advise that you go for platforms offering trading infrastructure for multiple cryptocurrencies other than the traditionally adopted bitcoin CFD trading services.
The Fees Imposed on Users
Bitcoin CFD trading platforms usually have the liberty to set their fees. As such, you should verify that the fees on your favorite trading platform are reasonable. Here, you should assess the interest rates on borrowed funds, the deposit/withdrawal fees as well as the trading fees. While carrying out this research, you should try as much as possible to compare these fees with the ones implemented on similar websites. Also, explore the platform’s policies to verify that there are minimum deposits imposed on traders.
The Spread and Leverage Offered
Earlier in this guide, we discussed the concept of spreads in CFD trading and how it could determine the profitability of a trade. Owing to its importance, it is, therefore, advisable to access information regarding the spreads of each CFD trading platform under review and opt for the ones that offer the lowest spreads. Besides spreads, you should explore the range of leverages accessible on the CFD trading websites and ensure that they match your propensity to take risks. Some platforms are more attractive to risk-tolerant traders, as they offer leverages as high as x100.
The User Experience and Beginner-Friendliness
While some trading sites are tailored to advance traders, some are more appealing to newbies. Hence, you ought to gauge your trading skills to determine the type of bitcoin CFD trading platform that best suits you. For new traders, it is imperative to ensure that the trading tools available on the site are not too complex and that the platform has created different tutorial materials to help you understand its features. Additionally, ascertain that the interface of the website is intuitive and easy to navigate. Then, there is the mobile compatibility, which determines whether you can access the site effortlessly on your smartphone and tab. We advise that you opt for trading platforms with efficient mobile apps.
The Customer Support System of the CFD Trading Website
Owing to the complex nature of margin services and trading platforms as a whole, we expect bitcoin CFD trades enablers to leave no stone unturned when it comes to delivering topnotch customer support systems. These services ought to avail 24/7 customer support, which is accessible on different communication channels.
How Did Cryptolinks Compile Its List of the Best Crypto CFD Trading Sites?
In this review section, we have 12 platforms that have proven beyond any doubt that they belong to the top echelon of the bitcoin CFD service market. Trust that all these sites have undergone a series of organic research that proved their viability. For one, we focused on the reputation of the sites, their fees, the leverages accessible on them, their customer support system, and all other recommendations listed in this guide. That said, we have included comprehensive reviews of each website mentioned on our list, and we advise that you read them before adopting one.