The first blockchain currency, Bitcoin, was launched in 2009 and was not received enthusiastically by most countries. It remained a passion for coders, mainly because it was challenging and not for profit motives. Traditional traders kept their distance from crypto because they found it non-profitable. However, Bitcoin saw a sudden appreciation in its value in 2017, changing the game forever. Bitcoin prices rose from $400 in 2016 to $9000 in 2017. This upsurge made every investor, trader, broker, and even skeptic pay attention to crypto.
Cryptocurrency is one of the most volatile instruments that you can legally trade. While there are other cryptos, like Bitcoin, Bitcoin is the most popular. It is a highly volatile asset, which makes it very attractive for risk-takers. If you want to be part of the crypto trading entourage, you can purchase physical Bitcoins or Bitcoin CFDs.
What is Bitcoin CFD?
Bitcoin CFDs, or contracts for difference, are derivative products that allow traders to trade on live market prices without owning the bitcoin instrument. Bitcoin cryptocurrency traders can own if they open a wallet that will act as a bank account, and through this wallet, traders can store, receive, or transfer Bitcoins.
If you want to trade Bitcoin as CFD, visit the broker’s page.
Buying Bitcoins in Physical Form
Bitcoin is a cryptocurrency, which means that it exists virtually. Then, how can someone buy physical bitcoins? Technically, you cannot buy bitcoins in physical form because that does not exist. However, we can tell you how to store it like a real currency. First, you need to create a wallet that will act as a bank account but from Bitcoin. You can store, receive, or transfer Bitcoins through this wallet at your discretion. This wallet can be installed on your mobile or a computer. You can even use a third-party application if the original app is unavailable in your country. To initiate the wallet, you will need a Bitcoin address and a private key that you can use to make the transactions. You can purchase Bitcoin online by paying a small fee.
Not everyone is comfortable keeping a wallet, especially when a third-party platform is concerned. Traders who wish to take advantage of price fluctuations but do not want to buy the underlying asset refrain from keeping a wallet. They prefer CFDs.
Contract for Difference (CFDs)
A Contract for Difference, commonly called a CFD, is a deal between a buyer and a seller. Here, the underlying asset, Bitcoin, is not bought. Both parties agree to pay in cash any price difference on a future date due to fluctuation in the asset’s price. Since it is a contract between two parties for a particular future date, it is called a contract for difference. If you can identify the trend, you can capitalize on it and pay the difference in the price value from the purchase date to the contract’s expiration date. If you cannot identify the trend, you will pay the other party the same difference.
Many traders prefer CFDs for various reasons, one of them being the lower commission they will pay in the form of spreads. This allows traders to gain from lower price movements and open more interim positions. One of the most significant advantages of buying CFDs instead of physical bitcoins is that you are not required to make significant investments. Since a CFD is a contract in which only the difference is paid, you do not need to pay for the actual asset. Such privilege is not available with physical bitcoins. You must pay in full for the bitcoins you want to hold in your wallet.
As we all know, cryptocurrencies are highly volatile; having the advantage of setting up take profit and stop-loss would be beneficial. It can save traders from suffering huge losses. Unfortunately, these features can be accessed by CFD traders.
Advantages of Bitcoin CFDs
Leverage is an essential feature of any trading market as it allows you to operate securities or instruments of more considerable worth than your actual investment. For example, if your broker offers a 1:10 leverage and your actual investment is $500, you can operate $5000 in the market. CFDs offer the same advantage. However, we advise you to be careful while using leverage to increase the chances of both profits and losses equally. If you accurately speculate price trends, you will enjoy gains, but if your predictions are wrong, you can end up with more losses than your investment.
When you buy a physical currency, you can profit from it only when its price increases. For example, if you have bought gold to profit from it, you can only do so if its value increases. It is similar to physical bitcoins, but you can work around it by investing in CFDs. You can open a sell order if the prices are decreasing and still make a profit.
CFD trading is much faster than trading physical bitcoins. The entire process, from purchasing to selling, is more complicated and time-consuming when dealing with physical Bitcoins.
If you wish to trade Bitcoins using traditional fiat currency, you can do that with CFDs. As long as your broker does not insist on making payments in Bitcoins, you do not need to buy Bitcoins or even have any cryptocurrency.
You can trade Bitcoins on several platforms using any currency or against different currencies.
Bitcoin CFDs (Contracts for Difference) and Bitcoin represent two very different ways of engaging with the cryptocurrency market. Here’s a detailed comparison in bullet points:
Bitcoin (Direct Ownership)
- Physical Ownership: When you buy Bitcoin, you gain direct cryptocurrency ownership. You have the actual Bitcoin in your wallet.
- Storage Responsibility: You are responsible for storing your Bitcoin safely, which involves managing private keys or relying on a wallet service.
- Long-term Investment: Direct ownership is often considered a long-term investment, betting on Bitcoin’s price appreciation.
- Complete Control: You have complete control over your Bitcoins, including the freedom to transfer them to anyone at any time without needing an intermediary.
- Market Access: Buying and selling require access to a cryptocurrency exchange or a direct transaction with another party.
- Volatility Exposure: Direct exposure to Bitcoin’s price volatility, with potential for high returns or significant losses.
- No Leverage: Purchases are made with full upfront payment, without the option for leverage (borrowing funds to increase potential returns).
- Decentralized Nature: Embraces the decentralized ethos of cryptocurrency, avoiding traditional financial systems and controls.
Bitcoin CFDs
- Derivative Product: CFDs are derivative products where you speculate on the price movement of Bitcoin without owning the underlying asset.
- No Storage Concerns: Since you don’t directly own Bitcoin, you need not worry about wallet security or private keys.
- Short-term Trading: CFDs are often used for short-term trading, taking advantage of market volatility to profit from price movements in either direction.
- Leverage: Offers the possibility of margin trading, allowing for more significant profits (or losses) with less capital upfront.
- Broker Dependency: Trading is done through a CFD broker, so you must trust the broker’s platform, pricing, and trade execution.
- No Blockchain Transactions: Since you’re trading contracts, no actual Bitcoin transactions occur on the blockchain, reducing transaction fees and delays.
- Market Access Restrictions: Regulatory limitations may restrict access to Bitcoin CFD trading in some jurisdictions.
- Overnight Financing Charges: Holding a CFD position open overnight or longer can incur financing charges, which can affect the profitability of trades.
Summary
- Direct Bitcoin ownership is about having actual possession of the cryptocurrency, suitable for those who believe in its long-term value and wish to hold it as a digital asset.
- Bitcoin CFDs allow investors to speculate on price movements without the complexities of managing actual cryptocurrencies. They are suitable for short-term trading strategies and investors looking for investment leverage.
Both approaches have advantages and risks, and the choice between them should be based on an individual’s investment strategy, risk tolerance, and interest in directly or indirectly engaging with the cryptocurrency market directly or indirectly.
We always have different options for the same security, instrument, or asset. These options exist because every trader and investor has different goals and strategies. This applies to trading cryptocurrencies like Bitcoins as well. One option cannot be deemed ideal because several factors influence the price fluctuations of any asset. Cryptocurrency is a highly volatile asset and can result tremendously if your strategy is right.
Regarding volatile assets, traders are often suggested to change their strategies continuously. For example, if the crypto price falls, you will benefit more by trading Bitcoin CFDs. If you want to hold a long position, you are better off with physical currency. Therefore, the question of what will win in the BBitcoin CFD vs. Bitcoin battle is void. Before you conclude, research the market conditions. You can also follow verified crypto influencers for some tips. Make sure that you do not rush anything.
He is an expert in financial niche, long-term trading, and weekly technical levels.
The primary field of Igor's research is the application of machine learning in algorithmic trading.
Education: Computer Engineering and Ph.D. in machine learning.
Igor regularly publishes trading-related videos on the Fxigor Youtube channel.
To contact Igor write on:
igor@forex.in.rs
