Bitcoin investment has become a more attractive prospect to a lot of people in a relatively short time. Its price hit a one-year high recently, and has retained relative strength throughout most of 2020 despite the pandemic and its wide-ranging economic fallout.
This has helped to build some trust in Bitcoin among many who once disregarded it as an unstable and uncertain aspect. And on top of these changes, each passing day brings greater understanding of Bitcoin also. People are simply getting more used to it, and it’s only natural that this would spark more interest in investment.
To that point, we have looked into how to invest in Bitcoin in the past. We covered some of the different ways to buy it, how to set up a wallet, and how to manage an exchange — all for the purpose of directly acquiring Bitcoin.
The idea then, of course, is to hold that Bitcoin until it’s a favorable time to sell, and then profit off of the difference. What we wish to expand on here, however, is the idea that this is only the traditional way of investing in Bitcoin.
There are other methods to consider as well, even if they don’t all involve direct acquisition of cryptocurrency. And one of the most interesting alternative options is CFD trading.
What is CFD Trading?
CFD stands for “contract for difference,” which as it happens is a fairly literal description. Trading via this method, you arrange a contract by which you can profit off of accurately anticipated differences in asset prices.
To explain that in a little bit more detail, let’s assume that over the course of two weeks, Bitcoin moves from $10,000 to $12,000 in value (incidentally a two-week gain that isn’t at all unheard of for this particular asset).
Naturally, one way to profit off of this shift would be to have purchased Bitcoin at $10,000 and sold it at $12,000. But with CFD trading, you can also profit off of the very fact that Bitcoin would have increased in value.
You simply would have had to arrange a CFD trade with a contract signifying your anticipation that Bitcoin would gain value over a two-week period. In this case, with the price moving from $10,000 to $12,000, you would earn a return on your CFD (with the amount being related to how much you bought into the CFD for).
That more or less explains the method. It’s an option that’s available through some reputable online trading platforms, though we should mention you’re unlikely to find CFD trading on a standard cryptocurrency exchange.
What Are the Benefits?
The benefits of CFD crypto trading basically come down to four key points, which we’ll remark on briefly here:
- No Wallet or Exchange – Some people shy away from Bitcoin trading because it can seem complicated, involved, or even intimidating to open up a digital wallet and buy through an exchange. CFD trading doesn’t require either of these steps, and can thus come across as refreshingly simple.
- 24/7 Trading – This isn’t actually a unique benefit in the crypto world, given that typical trading can also be done 24 hours a day. But it’s still considered a perk of crypto CFD trading compared to other types of investment.
- Trading in Both Directions – Perhaps most interesting is the fact that the example of a successful CFD trade given above would have worked in reverse as well. That is to say, arranging a contract anticipating a loss would earn you a return if Bitcoin declined from $12,000 to $10,000 over a two-week period.
- Leverage – CFD crypto trading can also involve leverage, which is a function by which you can actually trade with more money than you invest. With 5:1 leverage, for instance, you can put $1,000 into a CFD trade but trade with $5,000, thus maximizing your potential return (though there’s potential for greater loss as well).
Can You Also Trade Other Cryptos Via CFDs?
As a final point, it’s also important to note that you can in fact trade other cryptos aside from Bitcoin this way.
Among the most attractive cryptocurrencies to investors, most if not all will be available at reputable trading platforms featuring CFD arrangements. So if you’re more interested in, say, Ethereum, Litecoin, Ripple, or even something somewhat more obscure, there’s a good chance you’ll be able to trade it with CFDs.
All in all, it’s definitely an interesting option for cryptocurrency traders to consider. Whether or not it’s right for you, is up to you to say, but some find it helpful to know that there are ways of investing in Bitcoin beyond just buying it.