Cryptocurrencies have evolved over the years into speculative investments for investors seeking returns from alternative assets. They are a possible hedge against inflation and weak fiat currencies. However, curious investors and speculators are yet to embrace this new class of assets. They still want to play around with traditional investments like stocks, forex, commodities, and indices.
Many traders and investors would like to test the platform but it's difficult to find a regulated cross-asset trading platform. Besides, managing cryptos and CFDs on multiple platforms gets daunting. Major platforms are trying to fill this gap by offering both investment vehicles on a single platform.
However, investors should know a few realities about bitcoin trading, and CFD trading. This article explores how CFD and crypto trading works and draws a difference between the two. It also explains why platforms that offer cross-asset functionalities are a better alternative.
What is CFD trading?
Short for Contracts for Differences, CFDs are contracts between financial institutions and investors, wherein investors take a position on an asset's future price. They allow traders to speculate on the future market movements of the asset, without actually owning the asset in question. CFDs are available for multiple underlying assets, including commodities, forex, shares, and indices.
When it comes to trading CFDs in a volatile market, it may have a lot to do with the regulations and economic news. Since CFD trading is basically the trading of different vehicles, a country's stance against them, as well as its foreign relationship, plays a vital role. For better returns, CFD traders not only observe charts and graphs but also look at economic calendars, current news, GDP reports, etc.
The CFD market usually opens up five days a week, and primarily deals with OTC (Over-the-Counter) trading platforms, New York Stock Exchange, to name one.
What is Crypto Trading?
Cryptocurrency trading is referred to the speculation of crypto price movements to make sound decisions for better returns.
Unlike the CFD market, cryptocurrencies have only been around for 13 years. Compared to the CFD's $5.4 trillion market size, the crypto market has a daily trading volume of over $1.03 billion - it's small, but $103 billion is still a lot. Although OTC trading for crypto exists, most of this money is traded through exchanges.
Cryptos are volatile, which makes them an appealing asset for investments. In terms of what affects a cryptocurrency's price, several factors play a crucial role, such as regulation, supply/demand, updates, etc. Since there is no centralized governance of the crypto market, it is available to trade 24 hours a day, seven days a week.
CFD Trading vs Crypto Trading
The price of both asset classes depends on the global supply and demand metrics. When demand rises, the price increases and vice-versa.
The major difference between CFD trading and crypto trading is the way they are traded. While a majority of CFD traders use OTC trading, cryptocurrencies are traded using crypto exchanges.
- OTC Trading: OTC trading offers global liquidity, but it makes use of middlemen like brokers to facilitate the trade. Traders can also go directly to the market, but it is highly regulated, which makes brokers a feasible option. The downside is the cut charged by brokers from profits.
- Exchange Trading: Crypto exchanges, on the other hand, are preferred for crypto trades. These exchanges also take a cut, but the fees are relatively lower as they charge a fixed rate on all trades.
Trading CFDs with Cryptos
A cross-asset trading platform like DIFX makes it easier for traders to make the best of both worlds as they allow investors to trade CFDs and cryptos on a single platform. Most of these platforms also offer crypto to crypto, crypto to CFDs, crypto to forex, and other trading options. These platforms have a better understanding of the security requirements and trading market
A slew of trading platforms are also trying to create a cross-asset trading platform, but it is unclear if they are doing anything broader than allowing users to buy and trade just forex with cryptos through existing exchanges.
DIFX remains a popular cross-asset exchange for trading cryptos with which traders and investors can trade CFDs with a wide range of cryptocurrencies. The platform allows buyers and
sellers to seamlessly complete trades with multiple payment options- allowing leeway for much lower fees.
The Bottom Line
The growing acceptance of cryptocurrencies as a possible hedge against inflation has drawn the interest of many CFD investors who are looking to expand their portfolios. Trading cryptos shares many similarities with forex, commodities, and other investment vehicles. However, doing so through either brokers or exchange could be more perplexing and costlier than trading through true cross-asset trading platforms.