Lately, anyone reading crypto news could be forgiven for thinking digital assets are one big minefield, full of treachery and deception, where there’s very little to rely upon in terms of investment security.
Indeed, many of the biggest names in the business, like crypto exchange FTX and crypto lender Voyager Digital, went bankrupt in 2022, leaving crypto confidence in tatters.
Still, crypto trading and investing continue, supported by the undisturbed confidence of many traders and developers in the industry, and by the ways crypto might potentially be harnessed for real-world uses in the future. For someone who wants to invest in the crypto market, figuring out the best way to go about it can be tricky. There’s an array of options out there, and it’s not easy to know who you can trust.
Should you invest in bitcoin directly, through buying the coin on an online exchange? Or should you choose CFD bitcoin trading, which is also done on online brokerages, but which doesn’t actually involve buying crypto assets? CFD crypto trading entails opening “buy” and “sell” positions on crypto prices, depending on whether you expect them to rise or fall. The outcome of your deal will depend on the accuracy of your predictions, rather than the fortunes of a particular digital coin, like Dogecoin or Binance Coin.
Before rushing in to invest by the method most familiar to you, do some research on what you’d gain or lose by using each given method. Join us as we start you along.
Storage
If you want to invest in buying a certain amount of bitcoin, you’ll need a secure way to store your digital currency. One way to do this is on the same crypto exchange on which you bought it, in something known as a “hot wallet”. Being online, this kind of wallet remains potentially vulnerable to the exploits of hackers, even if the exchange you use is one of the major ones, but many people do choose to use it. The preferred storage method in terms of safety is a “cold wallet”, which, being offline, is not susceptible to hacking. The downside of using a cold wallet is the chance you might lose your private wallet information, which could mean you’ve forever lost access to your crypto. CFD crypto trading doesn’t have any problem here. There’s nothing to store on an online CFD brokerage because your CFD is merely a contract, between you and your brokerage, to settle on the price difference in a cryptocurrency within a short period of time, like six hours or a day for instance.
Long and Short Positions
What tends to draw people to invest in crypto is the prospect of buying a coin while it’s still small and then watching one’s investment mushroom over the months to come. Such a thing is still possible, but many startup coins end up crumbling soon after their births. If you like the idea of buying a more established coin like Ethereum, your risk on this front is reduced, but you may find the costs of buying a major coin prohibitive. In CFD crypto trading, it makes no difference if your crypto of choice is skating on thin ice or not, because you won’t have “invested” in it in the traditional sense. All you’re interested in are the short-term price fluctuations in the coin over a certain period of time. You might, therefore, elect to open a “sell” deal (short position) on Ethereum simply because you believe prices are due for a correction. Having the opportunity to “go short” could prove valuable to you, especially in a market where confidence is shaky and volatility is high.
Leverage
Let’s say you have $10,000 in your online brokerage account and want to open a “buy” deal on Cardano, which is worth $50 a coin at the time. Normally, due to the restraints of your budget, the size of your deal would be restricted to 200 coins. CFD crypto traders can, however, expand the size of their deals beyond what their budgets allow, using something called leverage, which is basically money you borrow from your brokerage.
If you chose to use leverage of 30:1, your deal would go from being a $10,000 deal to being a $300,000 deal. In the event Cardano would appreciate to $60 (a 20% gain), you would then earn – not 20% of $10,000 ($2,000) – but 20% of $300,000 ($60,000). It’s important to note that the opposite would be true if Cardano prices dropped to $40: You would have lost 20% of your expanded deal size, because you have to pay back your broker for the money you borrowed.
At the End of the Day
As to the best way for you to enter the market, it really depends on your trading goals. Investing is usually done by those who intend to hold long-term positions, often with the aim of hedging against inflation. CFD crypto trading is concerned with shorter-term price movements and wouldn’t normally be done by someone seeking to preserve the value of their money over the long-haul. Consider your goals and all the above points before reaching your own decision.
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