Steemit Crypto Academy Season 2: Week2 | Cryptocurrency Contracts For Difference (CFDs) Trading by @salma78

Greetings to all and sundry on this noble platform, I am very delighted to write and submit my homework task given by prof @kouba01 for this week.

WHAT IS CONTRACT FOR DIFFERENCE (CFD)?

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Contract for Difference in crypto trading refers to measures that grant a trader the green light to invest in a particular cryptocurrency by participating in a contract without opening a position directly on the market.
Over here, the trader and the broker have a consensus between themselves to make a settlement of the difference after the closure of the positions.

CFDs allow investors to meditate on financial markets like stocks, shares, and commodities without taking ownership of the underlined asset. When one agrees to exchange the difference in the price of an asset from when the time the contract was opened to the time the contract is closed, then we say the individual has traded using CFD.

FEATURES OF CONTRACT FOR DIFFERENCE (CFDs)
•Short and Long trading
•Leverage
•Margin
•Hedging

HOW DO CFDs WORK?
Over here, we are going to look at four key concepts that explain how CFDs really work.

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1.SPREAD AND COMMISSION
The price of CFDs is two; the buy price and the selling price.
BUY PRICE: This is the price at which one can open for a long CFD. The buying price is mostly slightly higher than the current market value.
SELL PRICE: The buying price refers to the price at which one can open a short CFD trading. The selling price is usually slightly lower than the current market price.

SPREAD refers to the difference between the two prices, i.e. the selling price and the buy price.

2.DEAL SIZE: We say CFDs contracts trading are standardized and this is because the size of every person’s contract differs from each other and this size depends on the underlying asset being traded

3.DURATION: The time duration of CFD is not fixed for all CFDs. But most CFD traders don’t have a fixed time for expiry while others too have a fixed time for expiry like Options trade. There is overnight funding charged when one keeps a daily CFD position open past the daily cut-off time.

4.PROFIT AND LOSS: Profit or loss is calculated from the CFD trade by multiplying the deal size of the position by the value of each contract which is then multiplied by the difference in points between the opening and closing contract price.

Mathematically,

PROFIT OR LOSS = (no. of contracts x value of each contract) x (closing price – opening price)

BENEFITS OF CFDs TRADE
1.CFDs help traders to gain profits easily without owning any currency.
2.CFDs platform offers a very conducive environment for easy and safe trading.

1. CFD accounts opening are faster than most exchange trade.
   4.CFDs also allow traders in trading within a huge range of markets
   5.It also allows traders to make their capital go higher with leverage

HOW TO KNOW IF CRYPTOCURRENCY CFDs ARE SUITABLE FOR YOUR TRADING STRATEGY
CFDs would be a good strategy for a trader who has the following mindset or plans;
1.If the trader has a target of selling or buying at a small significant change to the price of any cryptocurrency
2.If a trader identifies that buying cryptocurrencies is very costly then CFDs are a good strategy for such a trader.
3.If the trader has an intention or plan of using margin trading to magnify profits then CFDs is the right technique.
4.If the trader needs a safe and secure environment for trading
5.If the trader is one who intends not to buy any tokens before having an access to crypto assets, then CFD is also a good strategy to use here.
6.If the trade’s plan is to offer trading at the point cryptocurrency gets to a long or short position.
7.Lastly, CFDs are good techniques for traders that have endurance in taking risk or trading in difficult environments.

ARE CFDs RISKY FINANCIAL PRODUCTS
Yes off course CFDs are really a risk investment. The following include the risks engaged in CFDs trading;
•There is a high overnight cost involved when one holds a position beyond the time limit
•High rate of overtrading in CFDs and this is as a result of the easy access to CFDs and the low capital engaged to start trading
•It is prone to Scams and fraud because it lacks ownership
•There is a high chance of double loss involved in CFDs trading especially when leverage trading fails.

DO ALL BROKERS OFFER CRYPTOCURRENCY CFDs?
No, not all brokers do offer cryptocurrency CFDs. Because CFDs aren’t yet popular, only a few brokers offer cryptocurrency CFDs. CFDs are still under development and with time I think all brokers would start to offer crypto CFDs on their platforms.

HOW TO TRADE WITH CRYPTOCURRENCY CFDs WITH A DEMO ETORO ACCOUNT
STEP 1
Open google and navigate etoro.com to sign up

STEP 2
Click on join now on the right top corner to register an etoro account

STEP 3
Fill in your details into the spaces provided, including your username, email, and creating a strong password. After that, you tick the small boxes to accept the terms and conditions, then click create an account.

STEP 4
•Click on Complete Profile to finish creating your account.
•Enter your name and date of birth then click on the greater sign arrow on your right side
STEP 5
Finalize everything thing by filling in your details until you finally finished it up in 100%.

STEP 6
•Click on Real Below your Profile and Select Virtual to switch to the virtual account.
•From the new interface, click on “Go to Virtual Portfolio” to switch completely

STEP 7

I would be opening trade for Litecoin (LTC), so I would go to crypto coins and select LTC.

STEP 8
Click and open Trade Markets for LTC coin

STEP 9
Click on Trade to open trading

STEP 10
Enter the amount of LTC to trade, i.e. $50,000.00 LTC the click on Open Trade to invest.

STEP 11
This is my opened Trade

CONCLUSION
CFDs trading strategy is a good one for investment but it should be traded with much care. One should be an experience trader in CFDs before putting it in his plans of traading.