Did you know you can trade Crypto without a wallet?

Cryptocurrencies have shaken up the global financial world. They’ve changed how the market works. Both new and experienced traders, as well as financial institutions, are excited about their potential. There are many methods to trade cryptocurrencies; here we will go one particular method which might be confusing at first but we will break it down in this article.

To answer our main question on the title page, the answer is Crypto Contract For Difference (CFD) Trading but what is that exactly, the simple answer is "Crypto CFD trading is about predicting whether a cryptocurrency’s value will go up or down. CFDs are commonly mentioned in the context of forex trading, but they are used in both forex and crypto markets. Traders in both areas use these contracts to enter the market and make trades."

How does it work with cryptocurrency?

CFD trading with cryptocurrency works by allowing you to speculate on the price movements of cryptocurrencies without actually owning them. Here’s a simplified breakdown:

• You choose a cryptocurrency for example Bitcoin (BTC) and predict whether its price will rise or fall. Then you choose an amount to invest and specify whether Bitcoin price will be going up (going long/buy order) or going down (going short/sell order) in the near future then you placed the order on the broker chosen trade platform based on your prediction. If your prediction is correct, you make a profit based on the difference between the opening and closing prices. If you’re wrong, you incur a loss.

How does it compare with traditional investment?

As mentioned earlier, with crypto CFD unlike traditional investment you do not to buy/sell an item in order to gain from it. CFDs are agreements between an investor and a broker to speculate on the price movement of a cryptocurrency. With CFDs, you don’t own the crypto asset itself. Instead, you agree to exchange the difference in its price from the time you enter the contract to when you close it. This way, you can profit from price speculation without owning the asset.

A little bit background on the Basics of Traditional Cryptocurrency Trading.

Before CFDs were introduced, investors speculated on crypto prices through traditional trading. This required them to buy or sell cryptocurrencies directly on specialized exchanges, making them the actual owners of the crypto. Investors could place immediate or limit orders and trade cryptocurrencies against fiat currencies. Many preferred this method because it allowed them to fully control their crypto for the long term, including options like staking and lending. However, traditional trading also meant investors had to manage their investments, pay exchange fees, and ensure wallet security.

Now that we have gone over both sides of the coin- Crypto CFDs and Traditional Crypto Trading, let's analyze its advantages and disadvantages.

Advantages of Crypto CFDs:

Higher Leverage (CFDs): One key advantage of crypto CFDs is the leverage offered by brokers. This allows investors to control larger market positions with less capital. For example, trading $200 with 100:1 leverage means managing a $20000 position. This can boost potential gains but also increases the risk of larger losses.

No Exchanges Required (CFDs): Unlike traditional crypto trading, crypto CFDs don’t need exchange accounts. Investors only need to work with a CFDs broker offering crypto instruments, making the process more convenient and accessible. However, this also means investors don’t own the crypto assets directly and might face higher fees than on regulated exchanges.

Variety of Cryptocurrencies (Traditional Trading): Traditional crypto trading offers access to a broader range of cryptocurrencies compared to CFD brokers. This allows investors to explore more unique options beyond popular ones like Bitcoin or Ethereum. However, those unique and uncommon cryptocurencies has a tendency to be more unstable and carries higher risk than the popular ones.

Disadvantage of Crypto CFDs

Deadlines in Crypto CFDs: Unlike traditional trading, where investors can hold assets long-term, CFD contracts have expiration dates. This means investors must close their positions by a specific time, regardless of whether their predictions have come true. If they don’t, positions may be automatically closed, potentially leading to losses based on the current market price.

Commissions: Both systems have their own costs. For CFDs, brokers charge a spread (the difference between the buy and sell price) and may also have additional commissions for opening and closing positions. Traditional exchanges, on the other hand, charge fees per transaction and withdrawal fees when transferring assets to a personal wallet. These costs can vary across different platforms and crypto pairs.

Regulatory Considerations: The cryptocurrency world is still evolving globally, and regulations for CFD trading differ widely across jurisdictions. While some countries have established crypto regulations for traditional trading, many still lack a clear framework. Investors need to understand the regulatory landscape in their region and consider the associated risks.

      Now that we have gone over both methods in detail, it all boils down to your risk profile and preferences. Traditional crypto trading may carry lower risks compared to crypto CFDs due to the use of leverage. However, investors are limited in terms of the potential gains they can expect from traditional crypto trading versus crypto CFDs, unless they are willing to bet on buying some uncommon cryptocurrency driven by trends or FOMO, which may cause it to significantly rise in value. This method of investment also carries huge risks, as these so-called altcoins tend to be very unstable in prices and are not recommended for long-term investment.