Greetings fellow steemians,

P

Especially to members of the steemit crypto academy community.

I am here to complete prof @kouba01
homework task.

Introduction

After going through the professor's lecture, he spoke about CFDs in general and how to make real time trade with the broker etoro.

After understanding his lecture and doing my own research I will now proceed to answering the questions.

What is a CFD?

CFD is a short term for the word Contracts For Difference.
CFDs can be defined as a treaty that allows a trader to earn or loose on an asset's current value on the market.

This type of trade doesn't require that the trader holds the asset in question, what the trader only needs to do is to predict if the price of the asset will go up or down.

So depending on the outcome he predicts if he either gains or losses.

For instance, the trader predicts that the price of an asset will increase, if the price of that asset actually goes up he will make profit.
But if the price of the asset goes in the opposite direction, the trader looses.
Before a trader actually make a prediction he makes a deposit and then uses part or all of that deposit in predicting

When you predict that the price of the asset will go up , for each point that the price moves up you will be paid in multiples of the units you bought or sold
And when you predict that the price will decrease, for every unit that the price goes down you will loose money in the multiples you bought or sold.

CFDs are not only done with crypto assets;
Stocks, commodity and index amongst others are also usable.

In this type of trade you are only handed two options.

What is cryptocurrency CFDs trading?

Before I explain how a cryptocurrency CFD trading works, I will first explain what its is.

A cryptocurrency CFD trading is no different from the actual term, the only difference here is that the asset you involve in here is different from the others.

In this type of trading you only predict the prices of cryptocurrencies such as bitcoins, ethereum etc.

How to do a crypto currency CFDs.

Firstly, Before a trader involves with a particular crypto, the trader chooses the crypto offered by the broker.eg. bitcoin.

Secondly, the trader takes his position, ie if he is buying or selling , the amount he wants to invest and other factors depending on what the broker provides.

Thirdly, Before anything is done again the trader and the broker then agree on the opening price of the crypto and other factors.

Furthermore, the position they take is left open until any of the trader decides to close it.
The position taken can also be closed automatically when the final destination is reached.

Lastly, incase the position opened closes in profit the broker pays the trader and vice versa.

How does a cryptocurrency CFDs work.

CFDs allows traders to forecast what the price of a cryptocurrency pair will be in a time to come.
The following pairs are used;

1. The BTC paring with the US dollar.

2.ETH pairing with the US dollar.

3.Bitcoin pairing with ETH.

Advantages of cryptocurrency CFDs.

When involving in cryptocurrency CFDs there are many advantages and disadvantages, the following are the advantages.

1.If the trader forecast well there is a high chance of him making a lot if profit.

2.The asset is available to the trader at a much lesser cost than if the trader will buy the particular asset.

1. A trader can gamble both ways, whether he takes the long position or short position.

Disadvantages of cryptocurrency CFDs.

As there are advantages to trading in CFDs there are also disadvantages.
The following are the disadvantages in trading in cryptocurrency CFDs.

As a trader can make huge profit in just a short time, a trader can also loose all his funds in short time.

A trader who makes profit in the cryptocurrency CFDs is a trader who is good in price forecasting, a trader who
Is not good in price forecasting might not make profit but will just be gambling with his funds.

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

Not every method that works for a particular trader will work for another trader too.
A trader might gain much profit in crypto currency CFDs but another trader will make a lots of loss when he involves in this same type of trade.

Every trader will obviously want to involve in CFDs because of how profitable it is and plus you don't even need to actually own the coin.
The following are steps to know whether cryptocurrency CFDs is suitable for your style.

1. You have to be good at price forecasting.

2.You should involve in risk taking trades

1. You should have exposure in the crypto-asset market.

2. Your target should be the high and low rates of cryptocurrencies.

5.You should make an investment plan before actually making any trade on CFDs

Are CFDs risky financial products?

One might look at the advantages and say CFDs are beneficial.
One might also look at the disadvantages and say CFDs are risky.

But before you take an opinion on something you have to consider both side, ie, you have to take into accounts its advantages and disadvantages.

In my opinion CFDs are risky products.
Some of these risks are started and explained below.

1. The market conditions sometimes have effect on CFDs.

As a trader, before you even choose the coin you will take a position on you have to predict the price of the coin, look at the price movement of the coin and sometimes as you are guessing all this, the market is affected by different conditions which you did not even consider.
Sometimes a slight change in the market trend even affects your predictions.

1. Some of the CFDs contracts are not transparent.

Even though you are provided with all the terms and conditions, sometimes the CFDs provider make it very complex for you to understand this terms and conditions and they can sometimes trap you.

3.The uncertainty of making profits or loss.

Because this is a form of gambling, you don't know when you will be making profits or loosing.
As explained earlier slight market conditions can turn the tide into a different position and then you loose all your investment.

Do all brokers offer cryptocurrency CFDs?

Cryptocurrency CFDs depend entirely on the dealers.
As mentioned in the lecture,

it was illustrated that some CFDs offered by Ethereum broker was seen to be 1 dollar.

In some cases, a trader can actually invest without paying commission fees to the broker.
So this entirely belongs on the broker offering the cryptocurrency CFDs.

How to trade with a cryptocurrency CFDs with a free demo account.

For the purposes of this trade I will be creating the etoro account.

1. Firstly I will visit the official website here

2.Then I proceeded and created an account before switching from real portfolio to virtual portfolio.

1. After which I Completed my profile by visiting the profile page

4.I filled in my details with my credit (VISA CARD) to proceed.

1. After that, I returned to my virtual portfolio

6.Then I continued further to trade markets

7.Then I searched for ethereum and selected it
After which I opened a trade of $ 6,000.00.

You can find the screenshots of all my steps below.

Conclusion

Cryptocurrency CFDs is a risky line of business even though it is well known not every trader who involves himself with cryptocurrencies will like to engage in the line of CFDs.

Anyways traders who are looking for short way of getting profit may engage in this line of business.

I will then conclude by saying after going through the professor's lecture and making my own research I am now properly informed on how to go about CFDs.

note All pictures which are not cited are screenshots taken from etoro's page on google

Thank you