Crypto academy|season2 week2| homework post for [@kouba01]| crypto academy- Contract for Difference(CFDs)

Good day steemians, I am highly elated about being able to take part in this homework. My best regards go to professor @kouba01 for his splendid lectures on Contract for Difference (CFDs) trading. Through his lecture, I have imparted new knowledge by understanding CFDs and the related risks involved in their trading.

I will pause and present my article which was assigned to us by @kouba01 after the conclusion of his lecture.

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(Question 1 ): What are cryptocurrency CFDs?

A cryptocurrency CFD is a digital money and can also be used to buy goods and services virtually with strong cryptography for secured transactions. CFDs is the abbreviated form of Contract for Difference. It act as a contract between a trader and a cryptocurrency chose to trade with. For actual fact, a trader does not claim complete ownership of the cryptocurrency. It's based on whether the value of the cryptocurrency will rise or fall by choosing the appropriate CFD type. You are in lose if you make a wrong prediction because you must pay for the lost involved, however, if you make the right prediction, you will make a profit.

Question 2): How do I know if cryptocurrency CFDs are suitable for my trading strategy?

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Having knowledge of trading CFDs is the key if one wants to make money trading with them. It's a fact that the price of cryptocurrencies are volatile. Therefore, to trade in CFDs, you need to make sure the points below are taken into consideration.

You should know the use of demo account
This is where investors gain experience in the trading field. There is no cost to using a demo account. One can obtain experience in trading with CFDs.

One should know how to manage risk
There is a paramount in trading with CFDs if he or she knows how to manage risk. Hence, taking risk based on tolerance will prevent traders from losing.

It won't be easy to survive in CFD trading if there is no knowledge of cryptomarket. Therefore, one should make sure before trading with CFDs, proper knowledge on how graphs, the chart and how the trading tools work.
There will be suitable for trading with cryptocurrency CFDs if the above points are noted.

Below are the advantages and disadvantages of CFD trading.

Advantages

• The transaction costs are less.
• Interest is received in shortcomings.
• It offered easy account opening
• One can trade in the international market with a single account.

Disadvantages

• Investors of CFD can not claim any right as a shareholder due to not owning the asset.
• The levels of averages are not pliable.
• Risk is involved
• Interest is paid by investors on transactions.

Question 3): Are CFDs financially risky products?
Even though CFD transaction costs are less, there are risks if proper attention is not taken. CFDs made future contracts and the differences in the settlement are done via cash payments, without the delivery of physical goods or securities. These are classified as leverage products. Meaning, any little initial investment there is a presence of potential which is equivalent to market or assets. With this, the investment of the trader will be obvious. However, CFD trade not all the time results in profits but also loses.

Liquidity, market risk, counterparty's risk, and also client money risk often occur.

Let's look at how there are.

Market risk
CFDs are assets that can be used to run movements like stocks. When an investor realises underlying assets will fall, they will select a short position. However, invester will select long position when realised there will be rise in the assets.

NB: Even investors who are most educated can be wrongly proven.

Risk in counterparty

The company in which, in their transaction, provides assets is referred to as a counterparty. CFD provider issued a contract for the assets when purchasing or selling within CFD. The trader will be exposed to other counterparties of the provider. The risk involved is failure to fullfill financial transaction by the counterparty.

Liquidity Risk
Market risk affects many transactions and may result in loss. When trades are not available in the market for underlying assets, your contract will turn illiquid. CFD prices can be depreciated before your trade is done at the price agreed upon. This is term as gapping. At this point, The holder of that contract will take less than expected profit.

Client money risk
When there is an agreed contract, an initial margin is withdrawn by the provider and also not prohibited to ask for more margins from the account. The CFD provider has the ability to returned potentials to have affects, if margin calls are fail to meet by other clients in the pooled account.

Question 4): Do all brokers offer cryptocurrency CFDs ?
XTB, etoro, CMC markets, City Fadex are among the top brokers offering cryptocurrency CFDs.
Not all brokers offer CFDs, transactions which can be made without a negotiator can trade without CFDs required.

Question 5): Explain how you can trade with cryptocurrency CFDs on one of the brokers (using a demo account)

How to trade cryptocurrency CFDs using XTB demo account

You need to have an XTB account before trading with it.

This is how to create an xtb demo account.

• Search xtb.com from Google.

• Type your email and choose your country, then submit.

• From the pop up page, type in your name, number and password.

• Submit and your account is successfully created.

Below are the steps to trade cryptocurrency using XTB demo account.

• I will open my XTB demo account.
• Choose the type of market.

This is the first thing to do when trading in XTB

Instruments available are in the screenshuts below

Beginners most times choose to trade by using ' open ticket ' button from the platform located in the market chart. You can choose TP or SL levels. Approximation of profit or loss will be provided by the calculator if any is in activated mode.

If this orders re mastered well, you can now place order from the 'click and trade panel'

Conclusion

Cryptocurrency CFDs offers popular products which enable traders to get short-term profits. Their importance to traders are numerous, hence, CFDs are good channels through which investors and traders should enphasize on.

Thank you for reading

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Cc: @kouba01