Steemit Crypto Academy Season 2 week 2: Homework Post for Prof @kouba01 | Cryptocurrency CFDs Trading

Hello Everyone,

I deem it a great honor to participate in this week homework task.
The detailed lesson by prof @kouba01 entails a lot, he explained CFDs and how to make real time trade with a demo account using etoro broker.

Cryptocurrency CFDs

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Before I explain what Cryptocurrency CFDs are, let first understand what cryptocurrency is.

Cryptocurrency is a digital or virtual currency which is used to purchase goods and services with strong cryptography for secured transactions. Cryptocurrencies are not regulated or managed by any financial authority or banks as traditional currency but rather stores user records in a ledger. Most of these cryptocurrencies are decentralized. Examples of cryptocurrencies are bitcoin, litecoin and many more.

Now let’s talk about Cryptocurrency CFD. The term CFD stands for Contract For Difference, which gives the Cryptocurrency Contract For Difference. It is a trade between a broker and an investor in which the investor does not own the assert but rather predicts the rise and fall of the asset. If after an investor’s research and he thinks that the assert will gain value, he can proceed to purchase it and if the asset will depreciate in value in the coming future he can decides to sell it. Investors can benefit from movement in the price of an asset without having to buy the physical financial instrument. If an investor makes the right prediction it is a gain and if he fails too it is a loss.

How A Cryptocurrency CFD Works

As an investor if you think the value of a cryptocurrency will rise you can go long term and if you think it will fall too you can go short term. With this idea an investor can make profit in both rising and falling of the underlying asset.

An investor doesn’t need to deposit huge sum of money in an opening CFD trade but rather a small amount of the trade cost. This amount maybe 12% or even 5% of the general cost which is term as the margin demand. This explains that when an investor is opening a trade worth ETH 400 he can decide to pay a deposit of ETH 45 which is 12% of the general cost. If price move with the direction of investor’s prediction, he can still make 100% profit.

Merits of Trading Cryptocurrency CFDs

The benefits one derives when trading cryptocurrency CFDs are as follows:

• Investors can benefit from both short term and long term position

• Leverage allows investors to deposit a portion of the general trade cost.

• Trading in CFDs has no time limitation, it can be done at any point in time.

• Investors can trade cryptocurrency CFDs with their fiat currency like dollar.

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

It is obvious that prices of cryptocurrencies fluctuate, therefore to trade with them I should consider the following trading strategies;

• Risk taking: even after a careful study of cryptocurrency it still sometimes fails us, so I will have to prepare to endure those lost when it welcomes me.

• I will seek for a secure and safe network platform when trading.

• Knowledge about the crypto market: I will always make my own research on which coin to invest in, how to invest in it and when to invest.

• Start trading with low amount and study the chat of the currency.

• Cryptocurrency CFDs investment is quite expensive so one should always have it in mind.

• I will always exhibit a short term trading feature since long term can bring challenges.

Are CFDs risky financial Products?

Yes!! CFDs are risky financial products.

Reasons

• Leverages: as an advantage also comes with disadvantage, when investors prediction fails there comes a huge amount of lost more than the general trade cost. For example, if you take 30% leverage of an asset and had a wrong prediction you are likely to get 30-time loss of the capital invested.

• Price volatility: cryptocurrencies are not stable coins so there always fluctuations in its value. Some can depreciate to 35% in 24 hours.

• Charges involve: when an investor is trading for a long period of time, he is likely to be charged at a very high rate and when these charges are deducted from his profit, his profit will be something small.

Do all brokers offer crypto, currency CFDs?

Not all brokers offer cryptocurrency CFDs.

Reason: transactions on some assets can be made without intermediaries.
Some of the brokers that offer cryptocurrency CFDs are PLUS500, ETORO, Swissquote, City Index etc.

Explain how you can trade with Cryptocurrency CFDs on one of the brokers (using a demo account)

I will be using etoro for this demo trade.

• To start with, I visited the official website of etoro

I created an account and then switched from real portfolio to virtual portfolio.

• In the profile page, I completed my profile details by filling in my Credit Card details.

I then returned to my virtual portfolio and start with trade market.

I selected Bitcoin from the trade market as the coin to trade .

I open a trade of $ 7,000.00

Below are the screenshots of all the steps explained

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CONCLUSION

Cryptocurrency CFDs are very profitable to both traders and brokers but can also be very risky when their predictions fail. To invest in cryptocurrency CFDs one should research deeper into them to prevent future loss.

Thanks for your attention