Crypto Academy Week 10 - Homework Post for [@kouba01]...Cryptocurrency Contracts For Difference (CFDs) Trading by @masumrbd
First of all thanks to @kouba01 for the wonderful lecture on "Cryptocurrency Contracts For Difference (CFDs) Trading". The article was neat and clean. I believe this article clear most of my doubts about CFDs. Now it's time to complete my homework task. So, without further late let's get started. I will answer your questions one by one:
Question: What is a cryptocurrency CFD?
First, let's talk about cryptocurrency. Cryptocurrency is a digital currency. Which can be used to buy the necessary goods. Example: BTC, BNB, LTC & XRP etc.
"CFD" stands for Contract for difference. CFD is an agreement where you do not own any assets
but it is possible to trade on that asset, whether the price of that asset will increase or decrease.
Cryptocurrency CFD is an agreement in which the price of a cryptocurrency is traded depending on whether it can rise or fall. If you think that the value of cryptocurrency may increase in the future, then you have to "buy" which is called "long position". Again, if the opposite seems to be the case, meaning that the price may fall in the future, then "sell" is called "short position".
Question: How do I know if cryptocurrency CFDs are suitable for my trading strategy?
If I have the following points, then I will be sure that cryptocurrency CFDs are suitable for my trading strategy:
The price of cryptocurrency fluctuates a lot, so if there is a big loss, you have to accept it.
If I have low capital but want to make more profit by using margin and leverage in cryptocurrency CFDs.
I need to have an idea about the price forecasting of cryptocurrencies.
I need to know when to take a long or short position.
I must know the proper use of margin and leverage.
If I have the ability to find a risk-free broker.
Question: Are CFDs risky financial products?
CFDs financial products are very risky. Because the price fluctuates a lot here, that is why there is a possibility of more loss as well as more profit. We also use margins and leverage in CFDs so the risk is higher. If margins and leverage are not used properly, big losses can occur.
Suppose, Micheal has $100 but he wants to trade with $2000 in that case he has to take leverage of 20x. In case, if Micheal's prediction is right he will get his profit 20x times. But the same is true for the losses. If he was wrong his losses will be counted in 20x. That's why CFDs are risky financial products.
Question: Do all brokers offer cryptocurrency CFDs?
No, all brokers don't offer cryptocurrency CFDs. There are some brokers who offer contracts for the difference against cryptocurrencies among them I will try to describe 3 cryptocurrency CFDs brokers below:
1. ETORO
Etoro is one of the top-rated cryptocurrency brokers which is regulated by CySEC, ASIC, and the FCA. It includes Ethereum, Ripple, Bitcoin and Dash, and 13 more cryptocurrencies.
2. XTB
XTB deals with Litcoin, Ethereum, Dash, Ripple, and Bitcoin cryptocurrencies. It is also a well-known cryptocurrency broker. It is one of the world's top 5 cryptocurrency brokers.
3. PLUS500
PLUS500 is also one of the best cryptocurrency brokers. It is a very user-friendly broker by its clients and also good for beginners.
Question: Explain how you can trade with cryptocurrency CFDs on one of the brokers (Using a demo account).
My Explanation of how you can trade with cryptocurrency CFDs on one of the brokers:
- First of all, I create an account on ETORO
- Then make sure it is in virtual mode.
- After that, I will go to the trade market and buy ADA 4011.23 Units which costs me $5000 at the price 1.2421.
- Now the position is open.
- If the market price exceeds 1.2421 we will make some profit here.
Conclusion
Cryptocurrency CFDs are applicable to those who have less capital but want to make more profit in a short time. But you have to be very careful in using leverage here or you can lose a lot. Also need to have a detailed idea about the cryptocurrency market.
That's all for today. Thanks for patiently reading my homework task.
@masumrbd
Hello @masumrbd,
Thank you for participating in the 2nd Week Crypto Course in its second season and for your efforts to complete the suggested tasks, you deserve a 8/10 rating, according to the following scale:
My review :
A complete article on form and content, in which you answered all questions well in your own way. I wish you had added and analyzed an aspect other than the questions asked, but that doesn't diminish my admiration for your work.
Thanks again for your effort, and we look forward to reading more of your writing.
Sincerely,@kouba01
@kouba01, thanks for your feedback. Next time I will analyse more and try to do my best.