The cryptocurrency market offers so many existing tools to make investments that this time the topic to be discussed will be contracting for difference or well known by its acronym CFDs. Read more interesting facts about this trading platform and start your Bitcoin trading now.
What is a CFD?
CFDs are considered financial tools or instruments that allow exchange according to the price of a lower asset through the purchase or sale of it.
Its acronym stands for Contracts for Difference; It indicates that investors and traders can trade various financial products, such as stocks, futures, cryptocurrencies, indices, and many more, without purchasing them.
CFD investment process
In reality, contracts for differences are exchanged operations executed directly with the broker the trader selects. The stock is not bought now but works together through an agreement where both parties benefit.
The advantage of this tool is that you do not need to own an asset; in this case, a digital asset; the broker offers you different asset options, and that is where your strategic analysis comes into play to evaluate the movement of a said asset will be active in time.
Whether the move is positive or negative, you can always make a profit; everything will depend on the position in which you choose to invest.
The profits or losses through CFDs are given by the difference between the initial price and the final or closing price of the operation; For this reason, it is essential to evaluate the previous movements that the digital asset has had to make a decision.
The broker offers the investor something similar to a business tool where everyone wins through this investment strategy. In this case, the broker provides a percentage profit regardless of whether the digital asset’s price goes up or down.
Let’s remember that it is imperative to carry out this type of operation to carry out a preliminary analysis, some consider it a betting system, in which the parties involved benefit, but it can be a tool for beginners that allows them to understand the movements better than in the normal one when they develop cryptocurrencies.
Two terms that characterize CFDs
Carry out operations with contracts for differences; It is essential to know the purchase and sale prices because the digital market works the same way as the traditional financial market.
To adapt to the investment terminology in the case of CFDs, we find that the sale price is known under the acronym (ASK) while the sale price is (BID), and the difference between the two is known as the spread.
The spread is nothing more than the percentage of commission the broker charges for each transaction.
An important fact is that the BID is usually relatively lower than the market price reflected when investing, and the ASK price is the opposite; it tends to be older.
The brokers become the figure of the traders just as the stock market would be in the traditional market.
Some advantages of CFDs
Many users or traders are currently using this type of investment tool, mainly because of how accessible they are, but some of the relevant advantages of CFDs are listed below.
- Trading CFDs offers its users profits in both bull and bear markets; This does not imply any losses.
- They offer a large number of crypto assets to trade
- You can trade with leverage
- The market is available 24 hours a day, five days a week.
- Trades are closed when the user wishes.
- The investment amount is adaptable to the size of all the risks the investor wishes to assume.
- It does not generate commissions, only the percentage the broker assumes for each transaction.
Conclusion
We must know many terminologies and concepts to make this type of investment; Let’s remember that the cryptocurrency market is highly volatile, a feature that works against it, but when the appropriate analyses are carried out, it can be a point in favor of the investor.
The first advice will always be informed when negotiating in the financial markets. We should know the environment before investing in cryptoactive or traditional stock markets.
All cryptocurrencies are different; Usually, the trader prefers to start his investment process with the leader of the cryptocurrencies, Bitcoin; In addition, the initial investments must always be minimal; even if the profits are small, there is no risk of losing a lot of capital.
CFDs are an excellent option for beginners, so trying them out is always a plus.