If you are interested in becoming a trader, you might as well spend some time in knowing the different types of trading options available to you. It might seem a bit surprising, but there are many different types of trading, each with its own flaws and strengths. Now, when it comes to trading cryptocurrencies, you can go with the option of CFDs. CFD trading is different from traditional investment. How is it different? You will find out as you read on Xtrgate
Knowing the Differences of Crypto CFD Trading and Traditional Investments
The Main Difference
The first thing you have to know is the main difference between the two. After that, you can look into their differences based on their benefits. So, at its core, traditional investment is when you buy a stock or share and keep it with you with the expectations of its prices rising in the future. You buy the stock with your money and then you own it. At the end of the day, you are the owner of the stock that you have purchased. If you do not want to sell the stock that you own, you can do just about anything you want with it. Of course, you can always sell it back into the market with loss as well.
On the other hand, you have CFD, which stands for Contracts for Difference. The main mechanism of trading is quite similar to how you trade stocks. The biggest difference is in the ownership of the stock. When you trade CFDs, you trade the value of the stock but you never own it. The ownership part is only involved in traditional investing. So, when you are about to pick one, you have to keep this particular point in mind.
You can call it the luxurious part of CFD trading. In this area, you cannot compare CFD trading to any other type of trading. So, what are leverages and why are they important to CFD trading? You will be surprised to know here that people refer to CFD trading as leveraged trading as well. You can say that leverages are a part and parcel of this type of trading. Leverage is the contribution that comes from your broker to help you make huge trades. These same trades are otherwise not possible if you try to enter them with the amount of money you have in your account.
Leverage is always given in the form of ratio on the website of the broker. It shows how much you will contribute to get a particular contribution from the broker. If the leverage says 1:100, it means that your broker will contribute 100 dollars for every one dollar that you spend on the trade. You can already imagine how much it increases your power as a trader. When it comes to cryptocurrency trading, you cannot ignore the value and importance of leverage. It allows you to trade crypto coins like Bitcoin, which have huge values and cannot be traded by a new trader.
While there is leverage in this type of trading to help you make huge profits and enter big trades, there is also a thing called margin. Margin is the minimum amount of money that you will have to put in your account to start trading. So, when you sign up with an online broker for cryptocurrency CFD trading, you will be asked to put an initial deposit in your account. Unless you make this initial deposit, you will not be able to trade with the broker. At the same time, you will have to maintain a minimum that your broker tells you in order to start trading.
You can say that the margin acts as a protection for the broker. What if you enter a leveraged trade with a lot of contribution from the broker but you end up losing the trade? How will you pay the broker the amount that you lose? The loss that you make has to go out of the money that you have in your account. That’s where the amount that you have maintained in your margin will come into play.
When you talk about traditional investment, you are looking at a particular type of trading in a particular financial market. So, if you are looking to trade stocks, you are talking about trading the shares of large companies of the world. If you talk about commodity trading, you are looking at various commodities, such as oil, gas, cocoa, sugar, oranges, etc. for trading purposes. So, when you trade commodities, you just trade commodities. In a similar fashion, if you choose to be in the stock market, you cannot trade foreign exchange. There is no space for foreign exchange in the stock market.
CFD trading makes it possible for you to trade in many different markets at the same time. When you say cryptocurrency CFDs, you are talking about CFDs, not just the crypto coins. If a broker gives you access to CFDs, you can expect the same broker to give you access to a variety of financial markets in addition to the cryptocurrency market. For example, you will be able to use the same trading platform to trade CFDs in the foreign exchange, stock market, commodity market, the cryptocurrency market, etc. Today’s modern platforms not only allow you to trade these assets but offer you a variety of tools to help you with profitable trades.
If you are a modern trader looking for opportunities to make a lot of money in less time, you have to consider cryptocurrency CFDs. This is an easy method of trading that does not put you under the burden of owning the asset. Not to mention, you can earn huge profits on your trades by taking advantage of the leveraged part of the trading. You can also say that 2020 is the deciding year for the cryptocurrency market. If there is a right time to make money from crypto assets, it has to be right now.