Explore the debate between trading cryptocurrencies and trading Crypto CFDs to determine the better alternative. Cryptocurrency trading and CFD trading on cryptocurrencies are both trading avenues for virtual assets. However, there are certainly distinct differences between the two which we will be discussing in this article to give the uninitiated Indian trader a proper insight into both and help him choose his method of future investment.
What are CFDs Trading?
CFD is a kind of investment in your speculations regarding the value of an asset, which can be of many different kinds, like cryptocurrencies. When trading in CFDs you buy the rights to the difference in the price of the concerned asset and not the asset itself, for a fraction of its actual value. If your predictions regarding its rise or fall in price are correct, you reap the associated profit or loss.
What is Cryptocurrency Trading?
Cryptocurrencies are virtual currencies or digitized currency formats without a physical form. To trade in them, one buys them when their price is low and sells them when the price rises. In this case, the trader actually holds ownership of the assets until he chooses to sell them.
The distinct features for comparing cryptocurrency trading with CFDs Trading:
Leverage and Margin Requirements:
Leverage and Margin is a distinct features of CFD trading and would be pertinent if CFD trading in cryptocurrencies occurs too.
The idea is that you pay a margin requirement of the actual value of an asset in case of CFDs, to purchase the right to earn or lose a multiple of that amount in case your predictions regarding the change in the price of that asset, is right or wrong respectively.
In the case of traditional cryptocurrency trading, you will have to buy the currencies by paying their full price at the moment.
Upsides and Downsides:
For traditional cryptocurrency trading, the margins for loss and profit are normal and not much apart from the actual values, unless some drastic changes occur in the market environment.
For CFD cryptocurrency trading the chances of profit and loss are both drastic. Since you will reap returns based on multiples of your investment, you either gain many times as much as your investment or loss many times. There is no in-between.
Time Periods:
CFD trading is for short-term investments. In fact, if you do not release a CFD deal overnight, you will be charged an interest every day, making crypto CFD trading impractical for long-term investments.
Whereas for traditional CFD trading, your ownership of the asset lets you hold on to your currencies for as long as you want and release them when you feel the time is best. This crypto trading is a good option if you are looking for long-term investments with fewer risks.
Liquidity:
For traditional crypto trading, liquidity is a rigid factor. If you want to invest in any uncommon variety of cryptocurrency, you will need to trade it for Bitcoin and then get fiat from it. CFDs have an advantage here as you can directly invest in any currency of your choice.
Conclusion:
For an Indian investor who is venturing into the trading scene for the first time, both these forms of trading are lucrative and accompany potential risks. So it is essential to analyze your strengths and weaknesses while doing your homework properly before going head-first into investing in any of the options. .
