When it comes to trading cryptocurrencies, you have to speculate whether the market you have chosen will go up or down in value. And the interesting thing is that you never own the digital asset. Actually, the trading is done with derivative products like CFDs. Let’s take a look at the benefits of trading crypto currencies. Read on to find out more.
While the cryptocurrency is a new market, it’s quite volatile because of the short-lived speculative interest mining. The price of bitcoin dropped to $5851 from $19,378 in 2018, in just one year. However, the value of other digital currencies is quite stable, which is good news.
What makes this world so exciting is the volatility of the value of crypto currency. The price movements offer a lot of opportunities for traders. However, this comes with a lot of risk as well. Therefore, if you decide on exploring the market, just make sure you do your research and put together a risk management strategy.
Typically, the market is open for trade 24/7 because it is not regulated by any government. Moreover, the transactions are done between buyers and sellers across the world. There may be short downtimes when the infrastructural updates take place.
Liquidity refers to how quickly a digital currency can be sold for cash. This feature is important as it allows quicker transaction times, better accuracy and better pricing. Generally, the market is kind of illiquid as the financial transactions happen across different exchanges. Therefore, small trades can bring large changes in the prices.
Since CFD trading is considered a leveraged product, you can open a position on what we call “margin”. In this case, the value of the deposit is a fraction of the trade value. So, you can enjoy a great exposure to the market without investing a lot of money.
The loss or profit will reflect the value of the position at the time of its closure. Therefore, if you trade on margin, you can earn huge profits by investing a small amount of money. However, it also amplifies losses that may exceed your deposit on a trade. Therefore, make sure you take into account the total value of the position prior to investing in CFDs.