Cryptocurrencies may be used for purchases online such as ICOs or may be held longer term as an investment. Therefore, should you wish to exchange your FIAT currency, for example, US Dollars for Bitcoin, Ethereum and other Cryptocurrencies, you will need to use a Cryptocurrency Exchange for this. Alternatively, if you are considering a Cryptocurrency Exchange due to the price movements of certain Cryptocurrencies, then CFDs might be a better tool to use.
The availability of Cryptocurrencies varies between exchanges. Exchanges are like any other business and come with risks. For example, there have been issues with security breaches as well as bankruptcy. We, therefore, urge you to make sure that you do your research before sending money to an exchange. To reduce risk once you have made your exchanges, you may want to consider transferring your cryptocurrencies out of the exchange into your own wallet. You can even download your Cryptocurrencies to a configured USB and secure your cryptocurrencies in a safe. Most Cryptocurrency Exchanges are only a few years old, many don’t have phone applications, providing only basic charting or execution platforms with limited support.
If you are interested in the price movement of Cryptocurrencies and don’t want the hassle of Cryptocurrency ownership including Cryptocurrency Wallets, then CFD trading might be for you.
The CFD broker industry is over 20 years old and is a competitive global industry. Brokers are focused on delivering the best trading experience to their clients, they have powerful charting tools, education courses and most provide 24-hour help.
A CFD broker will provide the necessary support so that you can focus on your trading – and you will need to do just that! Cryptocurrencies have been volatile which means the price moves frequently and in large ranges. Adding to the existing risk of the price movement with cryptocurrencies, when trading CFDs you are normally trading on leverage. As an example, if a CFD broker provided you 10:1 leverage (10% margin) on Bitcoin and the Bitcoin price was US$6,500, the broker would require US$650 for the trade. So, with leverage you can trade in larger amounts or more trading products which could increase your profits or it can increase the size of your losses. With leverage or trading on margin, many beginner traders “overtrade” their account which gives them a position size which can be too big to handle. This can lead to big gains or big losses. Different brokers provide different levels of leverage and leverage often changes on different cryptocurrencies. CFDs as a product have more risk due to the leverage and there are other fees and charges to consider with CFD trading, including overnight financing fees.
Trading with a CFD broker does come with the benefit of a simple deposit and withdrawal options. Brokers accept a range of currencies and payment methods too. The money in your CFD trading account stays in its base currency. For example, should you deposit EUR, you are then able to withdraw your money as EUR back to your bank account. Most CFD providers only offer a limited number of Cryptocurrencies. These numbers will increase with the popularity and demand of the products.
To conclude, as with exchanges, there are also risks trading with a CFD broker. A broker may go bankrupt or have security breaches. Saying that, with the CFD industry being well established, combined with increased regulation, I would be more comfortable having my own money at a CFD broker, especially ones listed on this site, than with a Cryptocurrency exchange.