The Rise of Crypto CFDs

Already a few years old now, the popularity & awareness of Cryptocurrencies continues to soar to new heights. Despite a dip in cryptocurrency valuations 2 years ago, budding investors continue to pursue trading and investment opportunities in the crypto world.

Access to crypto markets in the early days wasn't so easy. However, in the last 2-3 years a plethora of Forex and CFDs providers have begun offering "contracts for difference" (CFDs) on a vast range of popular cryptocurrencies.

What Are Cryptocurrency CFDs?

Before we delve into the wide range of providers out there, let's go into exactly what crypto CFDs are, how they work and what sort of risks are associated with trading them. CFDs have been around since the early 1990s and were originally seen as a kind of equity swap traded on margin. Essentially a Contract for Difference is an agreement based on an underlying asset such as a share, index, commodity or currency pair. When you initiate a CFD trade you're speculating on whether you think the value of that underlying asset is going to appreciate or depreciate in value. You never physically own the actual underlying asset but predict the direction its value will head in.

If the asset price moves in the direction you have nominated, you'll be paid multiples of the number of units you have bought or sold. But should the price move in the wrong direction to the one you predicted you'll make a loss.

A cryptocurrency CFD allows you to calculate the future value of specific cryptocurrencies without ever physically owning them. This is great considering how often they are hard to acquire, and it also allows traders to try and profit on the volatility of crypto markets like they do in Forex markets. Many CFD brokers/providers allow you to open up a contract on the value or performance of a crypto in relation to a common currency. However, some providers also offer CFDs on an underlying crypto/crypto pair i.e. BTC/LTC.

How Do Cryptocurrency CFDs Work?

As just mentioned, Crpyto CFDs allow you to speculate on the value of an underlying cryptocurrency pair. If you think the underlying pair will rise you can long them or short them if you think they'll decrease in value. Sounds simple right? Just wait, there are further complexities you need to get your head around before trading Crypo CFDs. A key concept is understanding leverage and how it can be a key benefit or risk to this type of instrument.

To trade a CFD you only need to deposit a small percentage of the trade's total value. Sometimes this could be roughly 20% or as low as 5% and is known as the margin requirement. For instance, if you're trading a crypto CFD worth about $10,000 you might only need to deposit $500 of your own funds but you'll still receive 100% of the gains in the price moves in your favour. Conversely, trading with margin also opens you up for even greater losses as they are calculated based on the full value of the position too. Ultimately you could end up losing a lot more than your initial deposit and is a key risk all traders should be aware of before trading Crypto CFDs.

The Number of Brokers Offering Crypto CFDs is Growing

Given cryptocurrency is now seen as a legitimate, albeit controversial, financial product, the number of brokers offering cryptocurrency CFDs to their clients for speculation has been booking. The below list from Justin Grossbard at www.compareforexbrokers.com is just small proportion of providers flocking to offer this product to customers: