Crypto CFD Trading: How to Trade Bitcoin CFDs

Gianluca Lombardi, 10 min read
Last Updated: 9 July, 2023

Crypto CFD Trading

In the crazy world of cryptocurrency, buying and holding digital coins is just the tip of the iceberg.

Here’s a crypto trading strategy that might pique your curiosity – CFD trading.

Now, you might be wondering, “What’s this thing, and how does it differ from the typical trading I know?”

Good question.

You’re about to find out.

CFD trading or Contract for Difference trading, is like being in a fast-paced tech thriller movie, but instead of snagging actual crypto coins, you’re dealing with contracts.

This subtle twist to the trading plot allows you to trade without owning actual coins. And without having to store them on your own.

Now, that’s not to say that CFD market replaces spot market – they’re different beasts, each with its own unique ecosystem. But if you’re looking for an alternative trading scenario, one that comes with its own pros and cons, CFD might be your choice.

Key Takeaways:

  • CFD allows speculating on crypto price movement, not buying actual coins.
  • It offers higher security and simplicity, but includes risks like leverage and lack of coin ownership.
  • eToro, Libertex, Skilling, and Avatrade are regulated crypto cfd trading platforms.

Understanding CFD Trading in Cryptocurrency

Let’s get a closer look at the CFD trading instrument. In crypto value can change faster than you can say ‘blockchain’, CFD provides an alternative to traditional stock trading.

Here’s how it works: instead of buying the actual crypto coins, you speculate on the rise or fall of your chosen cryptocurrency. And this is why with CFD you don’t need a crypto wallet. You enter into a cfd contract (hence the name, Contract for Difference), agreeing to exchange the difference in the price of the cryptocurrency from when the contract was opened to when it was closed. If your prediction pans out, you get the profits. If not, you lose. You’re essentially speculating on the future price of a cryptocurrency.

Contract for Difference (CFD) trading allows you to speculate on the price of cryptocurrencies like Bitcoin and Ethereum, without actually owning the underlying assets.

With CFDs, you enter into a contract with a broker to exchange the difference in price from when the contract opened to when it closes. If you think the price will rise, you go long. If you think it will fall, you go short.

You don’t need to own the cryptocurrency to trade CFDs on it. You simply put down a deposit (margin) with the broker to open a trading position. The main advantages of CFD trading are:

  • Leverage – Brokers offer multiplier up to 30x on crypto CFDs, which magnifies your profits/losses. This allows you to take larger positions with less capital.
  • Shorting – CFDs let you open positions on falling prices by short selling. You can also go long. This is difficult in spot crypto trading.
  • Low costs – No crypto transaction fees. Only pay a small spread and overnight financing fees.

However, the leverage which boosts your profits also amplifies losses if the price moves against you. Therefore, trading CFD carries significant risk if not managed properly.

How Does Crypto CFD Trading Work?

Bitcoin CFDs follow the same principles as CFD in other markets like stocks and forex. Here are the key steps:

  1. Select your broker – There are many regulated brokers offering CFDs on major cryptocurrencies. Do your due diligence.
  2. Open an account – You’ll need to complete KYC verification and make a minimum deposit.
  3. Analyze the markets – Identify trading opportunities based on technical and fundamental analysis.
  4. Open a long/short position – Buy if you think prices will rise, sell if you expect them to fall.
  5. Set risk controls – Use stop loss and take profit orders to control losses and lock in gains.
  6. Monitor your trade – Track the live price and close your position when ready.
  7. Close your position – You realize your profit/loss when you close the contract.

Long vs Short Positions

  • Long – You buy the CFD if you expect the crypto price to rise. Your profit or loss is the difference between the closing price (higher) and opening price.
  • Short – You sell the CFD if you think the crypto price will fall. Your profit or loss is the difference between the opening price (higher) and closing price.

Difference Between CFD Trading and Spot Trading

trader infront of a graph

Now, let’s juxtapose CFD trading with spot trading. If you’re wondering what spot market is, it’s just your everyday cryptocurrency trading where you buy actual coins at their current price and hold onto them with the hope of selling them at a higher price in the future.

CFD trading, however, is a different ball game. It’s like being a player in the crypto game without actually owning any players. You’re not buying coins; instead, you’re buying contracts that represent the value of these coins. You’re basically speculating on the game’s outcome.

This means that if the value of the cryptocurrency increases, you can still make a profit without owning the coins. On the other hand, if the value decreases, you can lose, even though you don’t own the coins.

So, if you’re into owning actual crypto assets and willing to wait for their value to appreciate, spot trading on a cryptocurrency exchange is your route.

But if you prefer fast-paced action and are comfortable with speculating on price movements, crypto CFDs could be your go-to strategy.

Key Benefits to Trade Crypto CFDs

Here are some of the main advantages of trading cryptocurrency CFDs rather than buying/selling the actual crypto assets:

  • Leverage – Get larger exposure with less capital through multiplier up to 30:1 offered by brokers.
  • Short selling – Trade falling crypto prices by short selling CFDs.
  • No crypto ownership – Avoid challenges of buying/storing/securing cryptocurrencies.
  • Lower costs – No trading/transaction fees unlike crypto exchanges. Only pay small spreads.
  • Easy to start – Open an account with a regulated broker quickly and start trading.
  • Traditional assets – diversify into CFDs on stocks, indices, commodities alongside crypto.
  • Regulated – Major brokers are regulated, providing security for your deposits.
  • Trading hours – the CFD crypto market is open 24/7

However, these benefits come with the substantial risk of leveraged trading. Manage risk prudently.

CFD Trading Platforms for Bitcoin, Ethereum and more

In your quest to understand Bitcoin CFD trading, it’s critical to get acquainted with the key players in the field, the platforms that make it possible. eToro, Libertex, Skilling, and Avatrade are among the top contenders here, each with its distinctive features and security measures.

eToro stands out with its social trading capabilities, where users can mimic the strategies of successful traders. It’s like piggybacking on the success of others, a feature especially beneficial for beginners.

Libertex, on the other hand, offers zero spreads on trades, making it an attractive platform for cost-conscious traders. Their approach is rooted in transparency, with a clear fee structure and no hidden costs.

Skilling has carved a niche with its advanced charting features, appealing to more seasoned traders. Its clean, intuitive interface facilitates smooth navigation even through complex trades.

Last but not least, Avatrade impresses with its broad range of tradable assets and comprehensive educational resources. It’s a platform that caters to both novice and experienced traders.

Best CFD brokers at the moment according to our platforms reviews are:

Winner
eToro-Icon
Hybrid

ecoinomy average rating:

9.5/10

Assets Traded Stocks, Indices, ETFs, Currencies, Commodities, Cryptoassets
Max Leverage Up to 30:1 (varies by asset)
Trading Fees Spread 1%
Regulations EU, USA, UK, Austalia, Middle East
Cryptocurrencies 79+ BTC-Coin-IconETH-Coin-IconMIOTA-IconBCH-IconRipple-IconDASH-IconADA-Coin-IconEOS-IconLTC-IconNEO-IconXLM-IconZEC-IconEthereum-Classic-IconBNB-Icon
Payment Methods PayPal, Visa, MasterCard, Skrill, Neteller, SEPA, WebMoney
Number of Users 30 Million+

9.7/10 - Safety

9.1/10 - Fees

9.6/10 - Ease of Use

9.3/10 - Customer Service


Start here

Cryptoasset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.


skilling logo
CFD Broker

ecoinomy rating:

9.4/10


Trading Assets Forex, Shares, Indices, Commodities, Cryptocurrencies
Max Leverage Up to 50:1 (varies by asset)
Trading Fees 1%
Regulations EU
Cryptocurrencies 51+ BTC-Coin-IconETH-Coin-IconMIOTA-IconBCH-IconRipple-IconDASH-IconEOS-IconLTC-IconNEO-IconXLM-IconZEC-IconEthereum-Classic-IconTezosMoneroCosmosVechainUniswap
Payment Methods SEPA, VISA, MasterCard, Trustly, Skrill, Neteller, Klarna, Swish
Number of Users unknown

Security

Fees

Ease of use

Customer service


Start here

Plus500 logo CFD Broker

ecoinomy rating:

9.3/10

Assets Traded CFD Crypto, CFD Forex, CFD ETFs, CFD Stocks, CFD Commodities, CFD Options, CFD Indices
Max leverage Up to 30:1
Trading fees Spread from 0,1%
Regulations CySEC #250/14 (EU), FCA (UK), ASIC (AUS), FMA (NZ), FSP (SA)
Cryptoassets 20+BTCETHBCHLTCADAXLMEOSNEOTRXIOTABinance CoinChainlinkPolkadotUniswap
Payment methods Paypal, Visa/Mastercard, Skrill, Apple Pay, Trustly
Number of users 25 Million+ since inception

Security

Fees

Ease of use

Customer service


Start here

82% of retail CFD accounts lose money.


Libertex logo
CFD Broker

ecoinomy rating:

8.9/10

Assets Traded CFD Forex, CFD metals, CFD Indices, CFD Stocks
Max leverage Up to 30:1 (varies by asset)
Trading fees from 0,0003%
Regulations EU
Cryptocurrencies BTCETHBCHXRPLTCETCADAXLMEOSNEOTRXQTUMXEMSTEEMDashIOTAZCashBinance CoinTezosMoneroChainlinkCosmosPolkadotVechainUniswap
Payment methods SEPA, PayPal, Skrill, Neteller, Visa, Mastercard
Number of users 3 Million+

Security

Fees

Ease of use

Customer service


Start here

73.77% of retail investor accounts lose money when trading CFDs with this provider.


Understanding Order Types in CFDs on Bitcoin

Now, let’s navigate through the concept of order types. These are crucial elements when you trade bitcoin.

Market orders and limit orders are common in CFD. A market order is an instruction to buy or sell at the best available price. It’s immediate and often filled, but you might not always get the price you expected due to fluctuations on the price of Bitcoin and the crypto market.

A limit order, on the other hand, allows you to buy or sell at a specific price or better. Here, the control over the price is greater, but the trade-off is that the order might not get filled if the market price doesn’t reach your limit.

In essence, understanding these order types can give you greater control over your trades and help you manage risks effectively.

How does leverage in cryptocurrency CFDs work?

It is another significant aspect of CFD trading. It’s a double-edged sword, providing the potential for larger profits while also increasing the risks.

In CFD trading, leverage allows you to open a position larger than your initial investment. For example, with a 2:1 multiplier, you can open a position worth $2,000 with just $1,000 in your account.

While this sounds appealing, it can amplify your profits if the market moves in your favor, but it can also magnify your losses if the market goes against your prediction.

CFD trading, with its intricate order types and the potential of leverage, offers a unique perspective on bitcoin trading. In the upcoming section, we’ll delve into the pros and cons of this trading type, helping you determine whether CFD trading aligns with your investment strategy.

Risks of CFD Crypto Trading

While CFDs on Bitcoin offer advantages, they also carry significant risks:

  • Leverage risk – amplifies losses if the market moves against you. Margin helps cushion losses.
  • Overnight financing – Long trades pay financing costs, shorts receive financing credit based on interest rates.
  • Crypto volatility – Cryptos can fluctuate wildly, leading to rapid changes in P/L. Use stops.
  • Gap risk – Gaps in crypto prices can cause slippage on entry/exit orders.
  • Counterparty risk – If the broker becomes insolvent, you may lose holdings. Use regulated brokers.
  • Unregulated (OTC) – Some crypto CFDs are traded over-the-counter (OTC) and unregulated in certain jurisdictions.

To manage these risks, use stop loss, maintain adequate account margin, trade with reputable brokers, and size positions appropriately.

Key CFD Trading Strategies for Cryptocurrencies

You can apply both technical and fundamental strategies when CFD trading cryptocurrencies:

Technical Strategies

  • Trend following – Go long in uptrends, short in downtrends. Use moving averages to identify the trend direction.
  • Range trading – Trade Bitcoin CFDs within highs/lows when price is fluctuating within a range.
  • Breakout trading – Take long/short positions when prices break out of range or pattern.
  • Scalping – Make small quick profits on minor price moves throughout the day.

Fundamental Strategies

  • News trading – Buy/sell based on how new developments affect crypto prices.
  • Sentiment trading – Analyze investor sentiment metrics like social media and surveys.
  • Correlation trading – Take advantage of crypto correlations with stocks, gold, etc.
  • Event trading – Trade around major crypto events like halvings and protocol changes.
  • Relative value – Compare crypto valuations and trade the over/undervalued ones.

Tips for Responsible Bitcoin CFD Trading

Here are some tips to trade cryptocurrency CFDs responsibly:

  • Start small – use micro-lots and minimal multiplier when first learning.
  • Practice on a demo account before trading real capital.
  • Only risk 1-2% of your account on each trade.
  • Use stop losses on every trade to control potential losses.
  • Maintain at least 50% margin level in your account at all times.
  • Don’t add to losing positions – manage trades based on plans, not emotions.
  • Keep detailed records of your trades for review and improvement.
  • Trade only with regulated brokers and avoid unregulated crypto offerings.
  • Diversify into CFDs on stocks, commodities, and indices – don’t just trade crypto.
  • Withdraw profits regularly and re-evaluate your trading strategies periodically.

Starting to Trade Bitcoin CFDs

If you want to get started trading cryptocurrency CFDs, follow these steps:

  1. Educate yourself – Learn about CFDs, technical/fundamental analysis. Use free online resources.
  2. Choose a broker – Open a demo account with a regulated CFD broker to try their platform.
  3. Develop a trading plan – Outline your risk management rules, trade strategies, and goals.
  4. Start small – Fund a live account with a small amount and trade micro lots.
  5. Expand slowly – Increase position sizes gradually as you gain experience. Don’t rush.
  6. Review performance – Track and review your trades regularly to improve results.
  7. Stay informed – Follow crypto news and events to identify trading opportunities.

With the proper education, risk management, and discipline, CFDs offer an exciting way to trade cryptocurrency markets with flexibility. However, they also amplify risks, so trade responsibly.

Pros and Cons to Trade Cryptocurrency CFDs

When it comes to trading, every approach has its benefits and drawbacks. The same holds true for CFD trading in cryptocurrency. Let’s unwrap the pros and cons, so you can decide if this trading type fits your financial aspirations and risk tolerance.

Advantages of CFD Trading

Firstly, CFD trading platforms are generally known for their higher security standards compared to traditional crypto exchanges. They are often regulated by financial authorities, reducing the risk of unsavory activities that could affect your investment.

Secondly, CFD trading eliminates the need for technical expertise in managing hardware wallets, a common pain point for crypto traders. The platforms shoulder the technicalities, enabling you to focus on your trading strategies.

Disadvantages of CFD Trading

On the flip side, a distinctive disadvantage of CFD trading is that you never own the actual coins. Your contracts are solely based on the price movement of the cryptocurrencies. This means you miss out on benefits like staking or lending your cryptocurrencies to earn interest.

Another potential risk is the usage of leverage. While it can maximize your profits, it can also amplify your losses.

What is Spread in Cryptocurrency Trading?

The term “spread” in cryptocurrency trading refers to the difference between the buying (ask) and selling (bid) price of a cryptocurrency. It’s a major factor to understand as it directly impacts the cost of trading. Here’s how it works:

Components of Spread

  1. Ask Price: The lowest price a seller is willing to accept.
  2. Bid Price: The highest price a buyer is willing to pay.

Spread Calculation

  • Spread = Ask Price – Bid Price

Types of Spread

  1. Fixed Spread: Remains constant regardless of market conditions.
  2. Variable Spread: Fluctuates based on market conditions such as volatility and liquidity.

Importance of Spread

  1. Transaction Cost: A higher spread means a higher cost of trading.
  2. Market Entry and Exit: A lower spread is beneficial when opening or closing positions.
  3. Trading Strategy: Day traders and scalpers prefer assets with a lower spread to maximize short-term gains.

How to Minimize Impact

  1. Choose a Reputable Exchange: Look for exchanges known for offering competitive spreads.
  2. Timing: Trade during high liquidity hours to benefit from tighter spreads.
  3. Asset Selection: More popular assets often have lower spreads.

Understanding the spread is essential for any trading strategy, as it impacts the profitability of your trades. Always take into account the spread when calculating potential profits or losses.

Regulation and Licensing of CFD Trading Platforms

Understanding the regulatory environment of CFD trading platforms is crucial. eToro, Libertex, Skilling, and Avatrade are not just popular; they are also regulated, providing an additional layer of security for traders.

eToro is regulated by several authorities, including the Financial Conduct Authority (FCA) in the UK, the Cyprus Securities and Exchange Commission (CySEC), and the Australian Securities and Investments Commission (ASIC).

Libertex is operated by Indication Investments Ltd, a company regulated by CySEC. This makes it a reliable choice for traders seeking a regulated platform.

Skilling, on the other hand, is licensed by the Seychelles Financial Services Authority (FSA), making it compliant with the international financial standards.

Avatrade is regulated globally, including by the Central Bank of Ireland, making it one of the most regulated platforms in the industry.

Remember, trading on a regulated platform adds an additional safety net, providing you with recourse in case of disputes or issues.

Conclusion – is CFD trading right for me?

CFD trading in cryptocurrency offers an intriguing alternative to traditional day trading.

However, it’s not without risks. From not owning actual coins to navigating leverage, there are factors to consider.

As always, in trading, knowledge and careful strategy are your best allies.

Stay tuned to our crypto trading hub for more articles on various aspects of trading. Until next time, keep learning, keep trading, and keep growing!

FAQ Section

What is CFD Trading in Cryptocurrency?

CFD trading involves speculating on the price fluctuations of cryptocurrencies without owning the actual coins. Traders buy contracts and try to correctly predict market trends.

How does CFD Trading differ from Spot Trading?

Spot market involves buying and selling actual coins and trading crypto on an exchange, while how CFDs work is by buying contracts based on the value of these coins.

What are the benefits of CFD Trading?

Best Bitcoin CFD platforms typically offer higher security, are regulated, and eliminate the need for managing hardware wallets.

What are the risks of CFD Trading?

Risks include not owning actual coins and potential amplified losses due to leverage.

Gianluca Lombardi

Gianluca is the editor-in-chief of this site. A finance graduate, he is an active trader who has tested all trading platforms and knows all their secrets. Technology is his passion; he spends much of his free time in the metaverse. Gianluca loves learning new things, researching, discussing and writing about technology, especially when it comes to cryptocurrency and blockchain technology.