Plenty of people are interested in crypto trading, but not all of them want to take ownership of the
crypto assets themselves. This is known as crypto CFD trading.
Crypto CFD trading means opening a contract for difference in the cryptocurrency market — making a prediction on which way a particular currency value is going to move.
CFDs are often spoken about in terms of the forex market, but these contracts feature on both sides of the forex trading vs. crypto trading debate. Both forex and crypto traders can use these contracts to access the market and execute trades.
How does CFD trading with cryptocurrency work?
Crypto CFD trading works like this:
- Traders analyse the market and identify possible upswings and downturns among crypto assets.
- They select a crypto CFD on their trading platform — the crypto will be paired with another currency, typically the USD.
- The trader then opens their position, putting stop-loss and taking profit measures to ensure the trade is sustainable.
- The trader monitors the market until they decide the right time to close their trade, sticking to their strategy all the time.
- They then take any profits they have received and absorb any losses.
The potential benefits of crypto CFD trading
Crypto CFD trading can provide some key advantages:
- With CFD trading, you won’t need to buy or take ownership of crypto assets and stocks.
- You can potentially profit no matter which way the market moves as long as your prediction is correct.
- There is an enormous array of CFD options in the crypto market, so it's easy to diversify your strategy.
- You can use leverage to potentially increase profits further — leverage also increases exposure to volatility and risk.
Cryptocurrency CFD trading derivatives
When you engage in cryptocurrency CFD trading, you have a few different derivatives you can incorporate into your strategy. These are trading instruments that 'derive' their value from the underlying cryptocurrency — this is where the name comes from. Learn more about some of these below.
- Spot trading
What is crypto spot trading? This is the process of opening a CFD position at the current spot price for a crypto quote currency. When you close the trade, you close it according to the spot price at that time. The difference between the two values decides the profit and loss levels. - Futures
Futures are standardised contracts sold across an exchange. Traders purchase a futures contract CFD and lock in the current spot rate until the contract expires. At the point of expiry, you are obliged to complete the transaction. If the spot price has increased, you have made money. If it has fallen, you have lost money. - Forwards
Forwards are similar to futures because both lock in the current spot trading rate for a set time. However, forwards can be customised according to the trader’s needs and then sold via the broker rather than via an exchange.
Crypto CFD leverage
What is leverage in crypto trading? This means putting forward a portion of your own capital reserves and then supplementing the balance with capital supplied by the broker via the trading platform. Check out our blog if you would like to learn more about how you can use leverage in your next trade.
What is the best strategy for trading crypto CFDs?
Crypto CFD trading can provide some key advantages:
| Strategy | What is it? |
|---|---|
| Scalping | Scalping is a high-intensity approach to crypto CFDs. Trades are checked constantly and kept open for only a few minutes, increasing opportunities for multiple, small profits. |
| Day trading | Day trading still requires almost constant supervision and analysis — but not on the second-by-second basis seen in scalping. Positions are opened and closed within a single trading day, typically within only a few hours. |
| Swing trading | A slightly longer-term strategy in which traders seek to time the swings in the price of a crypto asset, often over several days or weeks. Traders who prefer a slightly more passive approach with the potential for medium-term returns may prefer this option. |
| Buy and hold | Traders buy a crypto asset and hold it with a view to long-term gains. This is possible with a long-term crypto CFD, although it is less common than other entries on this list. |
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Frequently Asked Questions
With TMGM, you can choose from various possible cryptocurrency CFDs. Some of the most popular crypto CFDs involve Bitcoin, Ethereum, Litecoin and Ripple or one of its derivatives as a base currency. These include:
• BTC/USD
• BCH/USD
• ETH/USD
• LTC/USD
• XRP/USD
Other options include Dogecoin, Golem, and Kusama, among others.
• BTC/USD
• BCH/USD
• ETH/USD
• LTC/USD
• XRP/USD
Other options include Dogecoin, Golem, and Kusama, among others.
Beginner traders may feel more comfortable trading with better-known currencies like Bitcoin and Ethereum as they learn how to trade crypto. Thanks to their popularity and social buzz, they may be easier to research and analyse.
The timeframe you use for CFD crypto trading depends on your strategy and approach. Traders are highly encouraged to research various trading strategies to find one that suits their goals.
For instance, you might feel suited to a short-term scalping or day trading strategy. This will involve remaining engaged with the market when trading, making quick decisions and executing trades when you think the time is right.
Other strategies will involve longer-term approaches where you may decide to hold the position open for several days or even longer. While you will still need to assess your progress in the market, these strategies don't require the intense engagement of a day trading or scalping strategy.
For instance, you might feel suited to a short-term scalping or day trading strategy. This will involve remaining engaged with the market when trading, making quick decisions and executing trades when you think the time is right.
Other strategies will involve longer-term approaches where you may decide to hold the position open for several days or even longer. While you will still need to assess your progress in the market, these strategies don't require the intense engagement of a day trading or scalping strategy.
To start learning how to trade crypto, you first need to decide which form of trading you want. With TMGM, traders can speculate on future crypto price movements and have access to a range of tools and resources to help them execute strategic cryptocurrency CFD trades.