The most liquid crypto currencies trade 24-hours a day, 6-days a week like sovereign currencies. Crypto currencies have been trading for nearly a decade, but it was not until late 2017, did they become popular with retail traders. The most liquid crypto currencies are bitcoin, ether, Litecoin and Ripple. These currencies can be used as part of a payment system, as smart contracts as well as platform facilitators. While trading has become more widespread, trading is facilitated with products such as CFDs.
What are Crypto Currencies?
A crypto currency is a digital currency that can be used in many ways like a sovereign currency. Many of the crypto currencies are based on the blockchain, which provides a method for tracking transactions. Blockchain’s uses include generating smart contracts that can track the movements of a product from one destination to another.
There are products that you can buy or sell using a crypto currency, such as real-estate. You can also use crypto currency in some locations to purchase meals at a restaurant. Bitcoin has become prevalent enough to handle some of these mundane issues. Ether on the other hand, is solely used for the Ethereum network. Crypto currencies like Ripple are used for payment processing. Litecoin is a blockchain related currency that is used in many ways that are similar to Bitcoin.
What is a CFD?
A CFD or contract for difference is a financial instrument that is used to trade. A CFD tracks the price of an underlying instrument but when you purchase a CFD, you do not own the underlying asset. A CFD allows you to benefit from the movements of a specific asset, without dealing with the ownership. A CFD on a crypto currency allows you to benefit if the crypto currency moves but does not require that you hold a crypto currency in your account. You can buy a CFD or sell a CFD.
Contracts for Difference on crypto currencies are available in many sovereign currencies. For example, you can purchase a CFD on bitcoin versus the US dollar, as well as sell one that is denominated in yen. This allows you to take multiple different types of bets on the direction of a crypto currency.
Leverage
Crypto currency CFDs also provide you with the use of leverage. Leverage allow you to use a margin account to enhance your returns by borrowing money. You broker will provide you with leverage that can reach 10-1. This means that you can borrow up to 90% of the value of the crypto currency when making a trade. So, if bitcoin is trading at $3,500 to the US dollar, you would only need to post $350 to purchase 1-bitcoin CFD as opposed to $3,500 if you used a cash account. There are tremendous benefits to leverage, but it is a double-edged sword. You should employ strong risk management before you trade using leverage.
