Why Crypto Is the Next Big Thing for CFD Trading

By Dmytro Volkov, CTO of CEX.IO BROKER

The crypto market is becoming more mature. Over the last year and a half, more and more crypto businesses have acquired licensing, fitting into the regulatory framework. Business giants like WhatsApp and Twitter are working on their own cryptocurrency coins, and banks are demonstrating greater cooperation with crypto businesses.

Cryptocurrency trading is evolving as well. It all started with instant buying of crypto, followed by spot trading for those who could execute simple trading strategies. With spot trading, people trade with actual assets they store on their accounts, and there are a limited number of useful instruments for multi-source liquidity and leverage trading.

Contract for difference (CFD) is a financial trading instrument that involves no physical ownership of assets; profit is made solely on price changes for assets. In other words, no transaction with underlying assets is made, no matter whether the assets in a CFD are commodities (oil, wheat) or fiat money (USD, EUR, GBP etc).

The most important features of a CFD platform are:

trading with leverage
a variety of trading tools
support for popular types of orders including market, limit, stop, and OCO
the opportunity to create several accounts for the same currency
the ability to use separate accounts for different strategies
technical analysis, including a wide range of indicators and tools for drawing charts.
These features are new for spot traders but are quite familiar to forex traders who use the MetaTrader and CTrader platforms.

Crypto is becoming the new preferred option for CFD trading for several reasons. First, a trader doesn’t have to own assets for profitable trading. For spot trading, you should buy a certain quantity of Apple or Facebook shares, for example. Also, it’s well known that the cost of a single lot in mature forex markets starts at $100,000. Clearly, it’s not for everyone.

When it comes to crypto, there’s no high entrance fee to start trading. If you own at least $50 equivalent in BTC or ETH, voilà: the door is open.

The key difference between forex and crypto CFD trading is the potential profit. With the EUR/USD pair, for instance, due to the low volatility, you have to trade large amounts to expect any real returns. With cryptocurrency, it’s a totally different story; crypto offers higher volatility and hence promises more winning potential. For example, the 30-day window volatility at the beginning of 2018 was 7.5% in the crypto market, and as of 2019 it was 4%. This is higher than the volatility in the commodities market and even the forex market.

The only two things missing from this perfect picture are knowledge of crypto and trading platforms with a familiar and efficient user experience.

When it comes to the user experience, developers already understand the main principles of a good trading interface. To offer the best tool, it’s important to do one’s homework: study trading strategies, analyze existing forex platforms, and consult with experienced multi-asset traders.

It’s only logical for a crypto exchange to launch a CFD trading platform. Apart from allowing users to instantly buy crypto, exchanges have expertise in blockchain and cryptocurrency. Also, being backed by a cryptocurrency exchange, a trading platform may be more secure in terms of liquidity.

Crypto CFD trading will be the next big thing for the trading community. The evolution is unstoppable, and more and more people will get access to the trading magic. Once you have even the smallest amount in your wallet, you can use live accounts to see how it works, test some strategies, use 10X leverage, and possibly make some profit. And if you have doubts, you can practice on a demo account, just like with forex platforms.

That said, trading platforms should remain honest and remind people that CFD trading is high-risk and may lead to loss of funds.

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