Hi everyone and welcome to my homework post for week 2 of Season 2. I am really thankful to Professor @kouba01 for such and excellent, detailed lecture. This is how I am learning many new things in this Crypto Acadamey.

What is a cryptocurrency CFD?

Source

First of all let me explain what is cryptocurrency. Cryptocurrency is a digital currency and it has no physical entity. It means it does not exist physically and only it can be used digitally through use of internet.

CFD is abbreviation used for Contract for Difference. It is a kind of trading that is carried out without having the crypto asset in your wallet or account. Trader does not possess the crypto asset and only trading is carried out on the price of crypto asset.

Cryptocurrency is very volatile in nature and when a trader expects the value of an asset to increase or decrease, he can open a position that can be Buy or Sell. In other words, Long Position or Short Position will be taken by the trader on the basis of price fluctuations of an asset. In CFD trading, a trader can earn from both directions the asset moves. Whether its price increase or decreases, trader can earn from movement of price in both directions.

A trader earns from every point the asset moves into the direction that the trader has fixed in his trade that will be multiplied by the number of units the trader bought or sold. If the market goes in opposite direction, the loss will also be calculated in the same way.

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

Before starting trading Cryptocurrency CFDs, one should investigate and make some kind of research. To know if cryptocurrency CFDs suitable for one's trading strategy, one will have to consider following points.

1. Cryptocurrency trading is very risky and it should be traded with risk capital.
2. CFD trading is suitable for short term trading.
3. Invest only the money that one can afford to loose. Cryptocurrency is very volatile market and a trader can loose all his capital.
4. If a trader has low capital and he wants to use leveraged trading. Cryptocurrencies are very expensive and not everyone is able to purchase. So CFD trading facilitate users to trade with very small capital.
5. Trading in safe environment through regulated brokers.
6. Proper knowledge of margin and leveraged trading is required for such trading.

Are CFDs risky financial products?

Yes, CFDs are very risky financial products. As we all know, cryptocurrency is very volatile in nature and it can move very fastly to any direction, short or long. So, if the market goes opposite to the price forecasting of the trader, in this way, trader can face huge loss. As margin and leverage is part of CFD trading, it adds more risk to this trading. Proper knowledge of such trading is very essential otherwise, it can very risky and a trader can loose all of his capital. That's why every website of brokers show warning on the main page stating that trading involves high amount of risk. It may not be suitable for everyone. So, it can be said that cryptocurrency CFD trading is very risky and only risk capital should be invested.

Do all brokers offer cryptocurrency CFDs?

No. All brokers do not offer cryptocurrency CFDs and only some brokers offer cryptocurrency CFDs. I have given list of the brokers that are currently offering services to the traders. The list is given below and they are top rated brokers that are offering cryptocurrency CFDs.

BitMEX
eToro
TIOmarkets
PrimeXBT
XBTFX

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

eToro is not available in Pakistan. So I opened my account in PrimeXBT. After opening account and verification, I opened Demo account and opened my first trade on BTC/USD. I have given screenshots below.

I opened a trade by clicking on up. I have opened buy trade. By confirming, a trade is opened.

It can be seen in the below picture that a trade is open. I have clicked on Open Positions and it has given list of trades I have taken.

Conclusion.

To conclude, It can be said that traders with very small capital can trade with Cryptocurrency CFDs using a regulated broker. There is always high risk involved in such trading, so risk capital must be invested So that a trader can easily afford to loose that capital.

@kouba01

Thanks in anticipation.

Regards,
@mawattoo8