Choosing between Trading Crypto and Cryptocurrency CFDs
What is a CFDs
A contract for differences (CFDs) is a financial contract that pays the differences in the settlement price between the open and closing trades. When trading CFD normally investors are trading the long term or short term direction of securities, so its basically trading the movement of cryptocurrencies without owning the currencies.
What is Crypto Trading
It is the buying and selling of cryptocurrencies via an exchange, you purchase the coins themselves, you’ll need to create an exchange account, put up the full value of the asset to open a position. Unlike cryptocurrency CFDs, the process of trading cryptocurrencies directly on crypto exchanges requires technical knowledge of how cryptocurrency functions, you will need an account or a wallet.
Advantages of CFDs
- You do not have to own the coin all you can do is speculate on both rising and falling market direction.
- There is no risk associated with managing a crypto wallet, no expertise needed.
- If need be there is room for leverage trading.
- There’s no fear for hacks as the market is regulated with protection against loss of funds.
- With limited or basic knowledge you can trade cryptocurrency CFDs.
- You can profit both in a bull and bear market movement.
Disadvantages of CFDs
- Leveraged trading is very risky as you can incur losses so quickly that may be beyond your margin.
- Fees you’ll have to pay can be high compared to trading through crypto exchanges – spread, funding fees, and commissions.
Advantages of Crypto Trading
- There is low trading fees as compared to traditional brokerages.
- You can access a wider range of cryptocurrencies
- Trading cryptocurrencies via exchanges gives you access to crypto services like DEFI and NFTs.
- You can easily make payments (cross-border included) without third-party fees and interference
Disadvantages of Crypto Trading
- Minimum regulation of crypto exchanges.
- The trading process can be complicated for investors who aren’t tech-savvy
- Losing your wallet’s private key or seed phrase results in the permanent loss of your investments
- Exchanges are prone to hacking and cyber sabotages.
Depending on your risk appetite and risk tolerance the choice is totally depended on you and your strength, if you want to go short then CFDs will work the magic for you but if you want to go long you must opt for crypto trading. There are how ever few aspects you might consider as well, like how much capital you have CFDs you can venture with small capital, Do you want to use leverage or not? These questions will help you choose.