STEEMIT CRYPTO ACADEMY SEASON2 WEEK2 ASSIGNMENT BY@jimah1k: Cryptocurrency Contracts For Differences(CFDs)

Hello steemians;

I am humbled and grateful to be part of this weeks crypto academy’s lesson my thanks and appreciation goes to our professor @kouba01 for this lovely piece information he gave to us.
After carefully going through the lecture notes and doing some research. It delights me to do a review of the what I have learned through the assignment given.

---

source

---

What is a crypto currency CFD?

CFD is an acronym that stands for CONTRACT FOR DIFFERENCE. CFD is an arrangement made in financial derivatives trading(agreement between two parties) where the differences in the settlement between the open and closing trade prices are paid in cash. This form of trading is an advanced form of trading which is used by experienced traders, this form of trading is not allowed in the United States of America. There is no delivery of physical goods or securities with the CFD’s.

UNDERSTANDING CFD’s

---

source

---

CFD’s allow users to trade in the price movement of derivatives securities. Derivatives are investment that are obtained from underlying assets.

CFD’s are used by investors to make price predictions as to whether the price of an underlying asset will fall or rise. With this traders are allowed to place a bet on whether the price will move forward or downward. Traders who expect an increase of price will buy the CFD. While those who see the opposite will do the same. Should any of the buyer of the CFD see the price rise as foretold, they will offer to sell their holding. The difference between the buying price and selling price are netted together. The difference from the trades is settled through the investors brokerage account.

Pros

• CFD’s grants investors with all the benefits and risk of owning a security without actually owning it.
• CFD’s allows investors to be able to buy and sell.
• CFD’s gives investors the privilege of putting up a small amount with a broker.
• It also allows traders or investors to predict the price movements of assets

CONS

• Leverage can increase gains with CFD’s with can also increase loss.
• It isn’t highly regulated since it’s not allowed in the USA investors are reliant on brokers reputation and credibility.
• Fluctuation of prices can lead to wide spreads between the bid and the prices of the broker.

How Do You Determine Whether A Cryptocurrency CFDs Suits Your Trading Strategy.

• Buying crypto currency is expensive so you must look at your financial status before starting Andy trade.
• Everyone’s aim is to gain profit in CFDs so for that to happen you have to start from very low resources.
• Set a target and follow it when investing you should have a target.
• Short term strategies are the best investing in long term isn’t best because anything can happen so it’s better to go small small.
• Investors should be targeting both high and low rates of crypto currencies not only high or low but both.
• Taking of risk investors should learn or develop a habit of taking risk to be able to gain profits certain risks need to be taken.

Are CFDs Risky products?.

Definitely yes there risks involved these are some of the risks involved. market risk,liquidity risk,client money risk,counter-party risk.

Counter Party Risk

The counter party is an organization which provides the assert in a financial transactions. In buying and selling CFDs, the only assets traded is the contract provided by the CFD provider this reveals the investor to the providers other counter parties. Including all those he has done business with.

Client money Risk

There are certain laws to protect the investor from harmful practices of some CFDs. By the law money transfers to CFD provider must be separated from the providers money in order to prevent providers from spending their own. When a contract is agreed the provider can withdraw an initial margin. Ha can also request more. If other clients from the the pooled account don’t meet the demands he can draft from the pool account it sometimes affects returns.

Liquidity Risk

Financial transactions are affected by market conditions and as a result increases losses. When trades aren’t made for an underlying assets fir some period of time. At this point your contract may become illiquid. CFD will require margin payments or close the contract.

Market Risk.

Changes in the market conditions can results in changes. Small changes on the CFDs have great impacts on return, an effect of the value of an underlying assets may cause the CFD provider to demand second margin payment or closure of the contract.

Do all brokers offer cryptocurrency CFDs?

Not all brokers offer CFDs because third parties aren’t always involved in a transaction you can trade without paying anything to a centralized exchange.

How To Trade With A Cryptocurrency CFDs With A Free Demo Account

• Click on this link. https://www.avatrade.com/
• Click on register and fill out the form.
• After filling the form make sure you change it to demo account
• Enter the currency you want to trade in the address bar.
• Select the amount you want to buy
• Select buy

all images are screen shots from my phone

If you want to sell select sell and follow the same procedure

CONCLUSION

Basically this is what you should know about CFDs

Thank you for reading.