Crypto CFDs and why they’re not worth the effort

Cryptocurrency trading is almost at its peak already, but it doesn’t necessarily mean that we’re where we want to be in terms of volume. In the past, there were quite a lot of reasons as to why the volume was simply not sufficient enough.

There were serious market slumps, not enough traders being present on the market, or just plain old scammers that would immediately take the assets out of the system and liquidate them for cash. Overall, the volume was always facing some issues from the outside world and sometimes unrelated reasons.

However, nothing took as big of a hit on the volume as crypto CFDs did. These assets were responsible for over half the amount that the crypto market was losing in terms of trading frequency, and there was a really good reason for it.

What is a CFD?

A CFD is an abbreviation fo, Contract For Difference. It’s basically a contract saying that you purchased an asset at a given price, but you don’t necessarily own it. What happens is that the middleman, in this case, a CFD broker sends this information into the market and registers it as a legitimate trade. You as a trader will not have to worry about storage. The only place the contract is located is on the broker’s server.

So if you trade crypto CFDs you won’t need a wallet. CFDs are mostly used for commodities such as gold or silver. Trading these assets is much easier when you don’t have to worry about storage.

Now you may think why would anybody want to trade cryptocurrencies and not own any of them? Well, there was one reason that kept everybody hooked on CFDs, and that was leverage.

That’s right, most CFD brokers would offer 1:100 leverage on Bitcoin and Ethereum CFDs, meaning that people with just $100, could potentially make millions in profit if the trade was right. But now due to new regulations, most CFD brokers have been stripped of their most attractive offers.

Similar cases in other markets

Cryptos are not the only assets that were hijacked by CFDs. Regular currency pairs were also included in the CFD market, thus making Forex brokers hike their leverage offers sometimes to 1:1000, making them risk way too much for small gains. According to this guide on forex trading without deposit, CFDs were the go-to assets for most beginner traders.

Due to a lack of resources, leverage was the only way most traders could reach expert status. And by an expert, I mean a bulky account with hefty income rates.

Why trading crypto CFDs is a bad idea

Not everything was as white and black as it seems. CFDs have their own serious issues as well. Let’s discuss them.

Deadlines

The biggest issue that crypto CFDs have is deadlines. You see, once the contract is purchased the broker gives the trader a set amount of time to close it. If they don’t close it voluntarily, then the broker will do so itself. The only way to avoid this is to pay an extra fee and extend the trade as long as possible.

This may have been very profitable in 2017 due to how fast the prices were increasing on most cryptocurrencies, but nowadays, a 10% increase takes months to happen. This means that most of the profit that was supposed to be generated from a crypto CFD trade would go to paying fees for delaying the deadline.

Ownership

Ownership is also an extremely important aspect of regular cryptocurrencies when compared to crypto CFDs. Simply being able to move these assets from anywhere to any place with minimum commission fees is just too good to pass up.

By not owning your crypto portfolio, you would be jeopardizing your diversification strategies as it’s extremely hard to do so with CFDs due to a limited number of trades you can make on each platform.

Variety

Variety is also a very important issue when it comes to CFDs. Most of them have options only for Bitcoin, Ethereum, Litecoin, and all the popular altcoins.

Although this may not seem as bad, try to consider how hard it will be to remain positive during a bear market. If you were trading on a regular crypto exchange, swapping your Bitcoins for stablecoins would be a 5-second order, but with CFDs, you’d have to close the whole trade down and suffer serious losses due to the leverage that you were using.

It’s very hard to just wait out the storm and get back on the market when you don’t actually own the coins.

Conclusion

Crypto CFDs are simply not worth the effort. They are much more expensive than trading crypto regularly and are now not as valuable due to the regulations they had to face.

In Europe alone, CFD brokers can only offer a 1:2 leverage on crypto assets, while many crypto exchanges have started implementing margin trading options with sometimes 1:10 and even 1:100 leverage offers.

Overall, the age of the crypto CFD is slowly dying out as crypto exchanges evolve right before our eyes.