CFD or contract for difference trading and Forex trading have many similarities. First, both types of trading involve a similar trade execution process.
Traders can easily enter or exit the market in both rising and falling markets going long or short. CFD and Forex trades are executed on the same platform, using similar looking charts and pricing methods. CFDs are tradable instrument that mirrors the movements of the asset underlying it. It allows for profits or losses to be realized when the underlying asset moves in relation to the position taken, but the actual underlying asset is never owned. Essentially, it is a contract between the client and the broker.
Another similarity between CFD trading and Forex trading is that the only cost of trading is the spread, as opposed to other types of trading instruments that charge commissions and other finance fees. The spread is the difference between the price offered to buy or sell the pair. Cryptocoins are always traded in pairs, as you are taking one coin against another.
CFDs are mostly influenced by specific factors, such as supply and demand of a given commodity or trend changes associated with business sectors. Forex trading on the other hand is mainly driven by global events, like large employment shifts or international political changes. This makes CFD trading perfect for cryptocurrencies. You can trade one digital coin against another or a coin against the US dollar or the Euro.
The principal advantage of CFD trading is cost. Because there are typically lower margin requirements and markets are less regulated, a person can trade with a much smaller account compared to trading the actual asset.
Leverage in the CFD market begins with as little as a 2% margin requirement, meaning a trader can trade larger position sizes. Lower margin requirements mean less capital outlay for the trader and greater potential returns. However, increased leverage can also magnify any losses the trader may make. If the leverage of your account is 500:1, this means you can trade up to 500 times the equivalent amount of base currency you have in your account. To learn more about leverage please see our section on Using Leverage.
CFD’s in cryptocurrencies do not have expiration dates or times, so you can keep your trade open until the market moves in your favor. You can place stop losses to protect against a negative move and present your target price so that the system will close your trade when at your predetermined profit level.