Here’s what you need to know about trading cryptos with a CFD provider
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If you’re looking to buy and hold cryptocurrency — to “hodl” it, in the vernacular — you’ll want to do it at a cryptocurrency exchange.
But if you want to speculate on a crypto-asset’s underlying volatility, there’s another option open to you: a regulated contract-for-difference provider.
Indeed, forex traders are increasingly switching to trading cryptocurrency due to its high volatility and price momentum.
Using a CFD provider such as easyMarkets gives customers access to Metatrader 4, the electronic trading software favoured by traders for its advanced interface with a huge range of features.
Trading on crypto exchanges is generally done on web-based interfaces that can be slow and clunky.
When trading CFDs, there’s also no worry about a lack of liquidity that one might encounter trading on an Australian crypto exchange.
On some local exchanges, even major crypto such as Bitcoin might only change hands every few minutes.
Contracts for difference also allow traders to use 2:1 leverage, which isn’t available on most local crypto exchanges. In simple terms, leverage could allow a customer with $500 in their account to gain exposure to $1,000 worth of crypto.
Contracts for difference also allow traders to bet against crypto (shorting it) — something that can’t be done on most local crypto exchanges.
That said, there can be disadvantages to using a CFD provider.
Most platforms only offer exposure to a half-dozen or so well-established older cryptos, such as Bitcoin, Ethereum, Litecoin, Ripple and Bitcoin Cash.
Newer, next-generation coins such as Solana, Polygon and Avalanche generally aren’t available on CFD providers. If you want to trade a coin outside the top 25 or so cryptos, CFDs probably aren’t for you.
Because you don’t own the underlying asset, you can’t withdraw cryptos to use for yield farming or, say, to buy a new boat with your gains from the bull run. You’d need to withdraw to an Australian bank account.
If you’re okay with these factors, here are some things to consider when looking at a different CFD provider.
Tight spreads. As traders know, the spread refers to the difference between the buying price (the bid) and the selling price (the ask). The ask is always going to be a bit higher than the bid, but you want the difference to be as low as possible, otherwise you’re losing money on trades before you’ve even begun.
Market analysis. A good CFD provider might offer daily commentary from a professional trader on what is moving the markets and what potential catalysts to look for. Cryptos react to everything from Elon Musk’s tweets to central bank policies, and you don’t want to be caught off guard.
Ongoing education. It can be tricky to manage your emotions while watching the value of your account fluctuate. A key to being a successful trader is managing risk and having the right mindset. A good CFD provider will offer tips and courses on how to do just that.
VIP treatment. Obviously, you should never put money into a trading account that you aren’t prepared to lose. But if you do have $10,000 or more lying around to deposit, you could get white-glove status, including lower spreads and access to your own personal analyst to bounce ideas off.
This article was developed in collaboration with easyMarkets, a Stockhead advertiser at the time of publishing.
easyMarkets, is a leading provider of online crypto and CFD trading services. Their recently launched μBTC account allows traders to deposit, trade and withdraw in Bitcoin with the added power of their existing ecosystem and a history of financial integrity
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.