Steemit Crypto Academy Season 2: Week2 | Homework Task( Cryptocurrency Contracts For Difference (CFDs) Trading) by @abu78

I am much delighted to share my homework post for this week's task. I would use this opportunity to acknowledge the hard work of our own prof @kouba01 for his wonderful lecture taught this week.

WHAT IS CRYPTOCURRENCY CFD?

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Cryptocurrency Contract for Difference (CFD) is a technique whereby an individual utilizes in trading and investing in cryptocurrencies. Over here, the individual doesn’t open a position directly on the market, but instead, they involve themselves in a contract between themselves and a broker.

HOW DOES CRYPTOCURRENCY CFD WORKS?

There are two trades involved in CFD and these include;

1.Entering into a one-price opening trade with a CFD provider. In this case, the trader can decide to reverse the trade with the provider after opening a position with the CFD provider.

2.The second trade that closes the open position would be to sell if it was a buy or long position for the first trade. On the other way round, there would be a buy position for closing trade if or when the trade was a sell or short position.
The price difference between opening and closing-out trade is measured by the CFD.

PAYMENTS IN HOLDING A LONG POSITION
•In this situation, when the opening price is less than that of the closing out price; the differences between opening and closing out prices of the CFD are paid by the CFD provider to the trader.
•In another scenario, when the opening price is greater than the closing out price; the difference is paid by the trader to the CFD provider.

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The diagram shows that when one sells above the opening trade he gets profits, and if he sells below the opening trade level then he runs a loss.

PAYMENTS IN HOLDING A SHORT POSITION
•In this scenario, when the opening price is greater than the closing out price; the difference between the opening and closing out prices of the CFD is paid by the CFD provider to the trader.
•In another case, when the opening price is less than the closing out price, the trader here pays for the difference to the CFD provider.

SOME BENEFITS OF CFDs
1.It is faster in opening your account as compared to exchange trade.
2.It is very easy to trade
3.It is easy to magnify your gains or profits
4.Its environment is safe to trade.

HOW DO I KNOW IF CRYPTOCURRENCY CFDs ARE SUITABLE FOR MY TRADING STRATEGY?
1.It would be a good strategy for one who endures risk and trade in difficult environments
2.When one's goal is to offer his/her trade at exactly when cryptocurrencies reach the long position or short position, then CFD is a good strategy for such a person.
3.When the trader’s target is buying/ selling when small significant changes of price occur between cryptocurrencies.
4.It is also a good strategy to use Cryptocurrency CFDs when one identifies that buying cryptocurrencies is very costly.
5.When the trader aims at trading in a safer environment then CFDs are a good environment to trade.
6.Cryptocurrency CFDs are also a good strategy for investors that don’t want to offer any tokens before getting access to a crypto-asset.
7.Cryptocurrency again is a good strategy for a trader, if only the investor has the plan to do margin trading in order to obtain more profits.

ARE CFDs RISKY FINANCIAL PRODUCTS?

Yes, CFDs are really risked financial products and the following points underline some of the risks involve;
1.There is no or lack of liquidity in CFDs trading
2.Losses are also doubled or magnified as and when the leverage trading strategy fails
3.There is overtrading in CFDs due to low capital involvement and its easy access: overtrading refers to the exposure of a portfolio in the market at a specific time given, in that the remaining capital won’t be enough to pay for the losses across the portfolio.
4.High cost of overnight financing when traders decide to hold a position for a longer period such as for weeks or for months.
5.Due to the lack of ownership involved in CFDs trading makes it a risky platform for investment.

DO ALL BROKERS OFFER CRYPTOCURRENCY CFDs?
No, not all brokers do give cryptocurrency CFDs. Due to its unfamiliarity in the cryptocurrency ecosystem.

HOW YOU CAN TRADE WITH CRYPTOCURRENCY CFDs WITH A FREE DEMO AVATRADE ACCOUNT
STEP 1
Search for avatrade from google and visit the first page with the link https://www.avatrade.com/

STEP 2
Click on register now to sign up

STEP 3
Enter your information including your email, phone number, first name, and last name to sign up for avatrade and click create an account after filling in the details.

STEP 4
Your account login directly after that.

STEP 5
Complete your personal details and agree to all terms and conditions then click on submit to finalize your account.

STEP 6
Click on Add an account on the right side of the home interface to switch to the demo account

STEP 7
Click Submit to confirm your demo account creation

STEP 8
Click on My account

STEP 9
Go to your Demo Account and click on Web Trading

STEP 10
I would be trading on Ripple (XRP) cryptocurrency, Click on Trade and Select XRP cryptocurrency from the list given.

STEP 11
Click on buy to enter into buying trade

STEP 12
I would be purchasing 7000 Ripple coins so I will enter 7000 into the amount section

STEP 13
Click on Buy to confirm trading

STEP 14
To sell Ripple currency, follow the same process but in step 11 you click on sell and follow the rest process to complete the selling trade.

CONCLUSION
Looking at the CFDs currently, I would say they are very needed in crypto trading. CFDs help investors to gain high profits within a short period. Although with all its benefits, it is also a risky investment and traders should be very careful when trading on CFDs platform.
Thanks to all for reading my post.

Special Thanks to professor @kouba01