The rapid advancement of the Internet has made entering the world of investing an easy task, and derivative instruments such as CFDs or futures, are one of the main vehicles for access to investing in a variety of assets, from stocks and indices, to Bitcoin and gold.
What is a Bitcoin CFD?
CFD stands for Contract for Difference, and it’s basically defined by the name.
It is a contract between 2 parties, who acquire the obligation to pay or collect the difference between the purchase and sale price of the underlying asset.
As it is a role where the fulfilment of an obligation is required, it is flexible to take advantage of both downward (short) and upward (long) movements.
For example, a trader buys a long CFD from Cryptosoft, expecting the price to go up.
If this does not happen by the time the contract expires or closes early, the trader must pay the difference between the buy and sell price to the counterparty. The exact opposite happens if the trader’s forecast is correct.
They are offered by brokers, who function as mediators, and accept a part of the contract.
They are usually used with leverage, probably one of the greatest attractions of this type of financial instrument. Let’s see below what this is about.
How do I start trading Bitcoin CFDs?
What is leverage?
It is defined as the direct relationship between capital and credit. In the case of CFDs, the leverage is provided by the broker.
With this tool, the trader can multiply his buying power x10, x50 and x100 times.
By using 1:10, or 10x leverage, a trader with $1,000 capital can open positions of up to $10,000.
Thanks to it, it is possible to get very good profits, no matter how small the price fluctuation is.
However, it should be used with great caution, because just as much can be gained, losses can be of the same magnitude.
When you open a trade that is larger than your initial capital, your entire deposit is at risk, unless you use stop loss, allowing you to lose only a small percentage. It is generally not recommended to invest more than 3% per trade.