Crypto Academy Week 10 | Homework Post for @kouba01 | Cryptocurrency Contracts For Difference (CFDs) Trading

Dear Steemians,

This is another great lecture in Steemit Crypto Academy about Cryptocurrency Contracts For Difference (CFDs) Trading by Steemit Crypto Academy Professor @kouba01, who explained in-depth about Cryptocurrency CFDs Trading with practical example and I was able to understand the following thing from this lecture;

• Concept of Contracts For Difference (CFDs)
• How Cryptocurrency CFDs Work
• Cryptocurrency CFDs Leverage and Margin Trading
• How to Start Cryptocurrency CFDs on eToro Broker

Homework Task
At the end of the lecture, students were assigned a homework task by Professor @kouba01.

Write an article in which you must answer the following questions:

• What is a cryptocurrency CFD?
• How do I know if cryptocurrency CFDs are suitable for my trading strategy?
• Are CFDs risky financial products?
• Do all brokers offer cryptocurrency CFDs?
• Explain how you can trade with cryptocurrency CFDs on one of the brokers (Using a demo account).

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I am submitting my task through this post by answering the questions asked by our Professor.

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What is a cryptocurrency CFD?

The word CFD stands for Contract for Difference which means that traders are trading the contracts offered by a Broker. Cryptocurrency CFDs mean that traders or investors are entering into a cryptocurrency asset through a contract through a broker. The traded assets are not in possession of the trader but they enter into the market based on a contract of Buying/Selling offered by broker and agreed by both trader and broker.

Example
Let me explain with example on how CFD trades work. I have picked Ethereum CFD to show how it works.

1 - Opening A Position
The price of Ethereum CFD against the US Dollar is $2310 and we decide to buy 3 contracts at this price.

2 - Closing the Position
Now if Ethereum CFD will increase to $2450 and we decide to take profit by selling our 3 contracts at $2450 each.

3 - Calculating Gross Profit on Trade
In this example trade, we made a profit of $420 that is explained by calculations below

Opening Price	2310 x 3 = 6930
Closing Price	2450 x 3 = 7350
Gross Profit	7350 - 6930 = 420

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Key Features of Cryptocurrency CFDs

• One of the biggest features of Cryptocurrency CFDs is that traders can enter into Buy or Sell positions

• Trading is based on the contracts offers by a broker and agreed by traders

• It allows traders to go Bullish or Bearish based on their analysis without actually holding the cryptocurrency assets.

• It relieves traders from the pressure of storing a cryptocurrency on mobile wallets or exchanges.

• At end of the contract, a trader would accept profit or loss depending upon the direction price went.

• Leverage Provided by broker enables you to make more gains with small amounts.

• They are offered by Regulated Brokers giving some added protection to your investments.

• Cryptocurrency CFDs enable you to trade in a market where no central bank intervention threat is present.

How do I know if cryptocurrency CFDs are suitable for my trading strategy?

Every trader has different sets of strategies that determine what kind of markets or assets are suitable for his trading style. About cryptocurrency CFDs trading, I know that it is suitable for my trading style and strategies due to following reasons.

Technical Intraday Trading
I am basically a technical analysis trader doing mostly intraday trading. I am analyzing the market daily to spot intraday opportunities in both directions (Buy or Sell). So cryptocurrency CFDs suit my current style of trading and I am actually doing this in my account mostly on Bincoin CFDs.

Margin Trading
I like to trade with smaller balances and the margin provided by brokers in CFDs trading is suitable to my current style of trading that enables me to trader bigger market with small capital.

Potential of Making More Profits
Leverage provided by CFDs broker is key thing that enables me to make even more profits with small amount of initial capital risked. I have been doing this in forex market, so cryptocurrency CFDs will suit me without a problem.

Trading with Fiat Currency
I can trade cryptocurrency CFDs with my Fiat currency balance and don't have to go through buying cryptocurrency and then storing it on some exchanges because it is hard to buy cryptocurrency in my country.

Better Risk Management
There are some features provided by CFDs broker to manage your trading risks in a better way like Stop loss, Trailing Stop loss and Partial Take Profit.

High Risk Tolerance
My current trading style is to trade on leveraged assets and I am very comfortable to high risk associated with these assets. So cryptocurrency CFDs and high risk associated with them will not be an issue for me.

Low Capital to Hold Big
This recent bull run in cryptocurrency market was so quick that I missed taking entry into many major cryptos and now I cannot think of buying them at such high price but cryptocurrency CFDs allows me to trade them with small amount risked and get maximum benefits.

Trading in Regulated Environment
Most of the cryptocurrency CFDs broker are regulated by authorities and commissions that gives me a sense of safety that my capital would be safe.

Are CFDs risky financial products?

If you go to any broker website, they clearly states in their disclaimer about the risks associated with CFDs trading, so it is a sure thing that cryptocurrency CFDs are even riskier and only suitable to traders having experience of trading similar risky products before and they have the high risk tolerance. There are following reasons why I feel cryptocurrency CFDs are high risk financial products.

Leverage Brings More Risk
We must understand that trading on leveraged products will bring more risk to your table. The risk of losing in CFDs trading is more than normal cryptocurrency trading.

High Volatility
There are two things that can destroy your cryptocurrency CFDs trading associated with high volatility in crypto market. When there will be a pump or flash crash in a crypto asset, it will expose your account to greater risk.

High Swap and Commission Costs
In normal crypto trading, you can hold your positions for unlimited time and no extra costs is charged to you. This is not the case with CFDs trading and there are high swap and commission charges when you hold your positions for more than one day. Sometimes, these cost become greater than what you made as profit.

Fear of Account Liquidation
While CFDs trading allows you to trade the bigger market share with small amount, it also exposes you to account liquidation if market goes against you in short time. You can hold a cryptocurrency trade in normal market even if it drops 99% in value but you cannot hold for such big drops and your accounts gets liquidated after a certain margin and you lose all your capital, no matter market goes back after hitting your account liquidation.

Do all brokers offer cryptocurrency CFDs?

Few years ago, it was very hard to find a broker who was offering cryptocurrency CFDs and have regulations as well. Now, we have many brokers offering these CFDs trading options. Here are some of the popular brokers that are offering cryptocurrency CFDs trading and regulated as well.

Icmarkets - One of my favourite broker offering cryptocurrency CFDs in 10 assets and they are regulated by ASIC, CySEC and FSA.

eToro - One of the pioneer broker offering cryptocurrency CFDs trading and they are regulated by ASIC, CySEC, FCA and MiFID

Exness - This is one of the popular broker among retails traders offering cryptocurrency CFDs and they are regulated by CySEC and FCA

Avatrade - Another great broker with variety of assets available for trading and regulated by ASIC, CySEC, FSA CBI, BVI and FSC.

FPmarkets - An attractive brokers in terms of its trading conditions offering cryptocurrency CFDs and regulated by ASIC and CySEC

FXTM - It is a relatively new broker founded in 2011 but they are offering cryptocurrency CFDs in 3 assets and are regulated by CySEC, FCA and FSC

City Index - Another good broker offering cryptocurrency CFDs and regulated by ASIC and FCA

Easy Markets - They are providing cryptocurrency CFDs trading in 6 assets and are regulated by CySEC and ASIC

Admiral Markets - This is a good one providing cryptocurrency CFDs in 10 assets and also in Fiat pairing. They are regulated by CySEC and FCA.

Plus 500 - This one is good one in term of leverage 1:30 offered in 6 cryptocurrency CFDs assets that is a big one and they are regulated by ASIC, CySEC and FCA.

Explain how you can trade with cryptocurrency CFDs on one of the brokers (Using a demo account).

I have selected Icmarkets, my favourite broker to show you step by step process on how to trade cryptocurrency CFDs using a demo account.

Step 01 - Creating your Icmarkets Demo Account

• Go to https://www.icmarkets.com/ and click on TRY A FREE DEMO
• On Account Register Page, provide details like your name, email, phone number and country to proceed.
• On Next page, You will fill trading account details as shown in below image and click on Proceed
• You will receive your demo trading account details in your email that will be used to login and trade.

Step 02 - Login to Your Demo Account

• Go to https://www.icmarkets.com/ and click on Web Trader Button.
• Enter you trading account login details that you received in your email.
• You will be logged into your demo trading account.

Step 03 - Placing New Trade on Your Demo Account

• Click on the New Order button as show in below image.
• Fill in your contract details by selecting asset, contract volume and your Take profit and Stop Loss values.
• Click on Buy by Market or Sell by Market whatever you want according to your analysis. I have selected to Buy 1 Contract of Ethereum at current market price.
• You will get a message of Successful Contract Order placed as show below.
• Congratulations, you have successfully placed a trade on Ethereum CFD.
• Repeating the same process, you can place trade on any other asset.

All Images are screenshots from icmarkets.com and edited by me

Final Words

• Cryptocurrency CFDs are ways for traders or investors to trade cryptocurrency asset contracts through a broker.
• Cryptocurrency CFDs provide opportunity to trade in any direction with leverage and allows trader to make more profits even with smaller capital.
• Cryptocurrency CFDs are risky investments because of high volatility and margin trading, resulting in possible account liquidation
• If you want to trade cryptocurrency CFDs, then you should go for a regulated broker and must understand your risk tolerance level before starting trading.

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I would like to pay my thanks to our Crypto Professor @kouba01 for this wonderful lecture and looking to learn more in the coming weeks.

CC: @yohan2on

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