Trading CFDs On Crypto – Pros and Cons

Cryptocurrency trading continues to be a trending activity among retail traders, especially now when the bullish trend that started a year ago is extending higher. Using crypto CFDs comes with multiple benefits, enabling the user to take advantage of price movements and volatility, without ownership over tokens. Still, this activity involves both pros and cons, which is why any responsible trader should be aware of how the industry works, as well as how to deal with all the downsides. 

#1 Higher Volatility

The value of Bitcoin climbed to a new record high of $63,000, an impressive milestone given the token had been trading for a little over $4,000 a year ago. The same goes for Ether, XRP, and Litecoin, all altcoins that have managed to post solid gains. This confirms that the volatility in the cryptocurrency market is high, creating both potential opportunities and risks. 

Traders need to place a small portion of their available capital on crypto and use strict risk management rules, in order to prevent sharp drawdowns. Volatility, like leverage, is a double-edged sword for cryptocurrency trading, which is why most experts advise caution when dealing with these tradable instruments. 

#2 Larger price swings

Closely linked to volatility, a significant downside of crypto is represented by larger price swings. Corrective moves can be impulsive, directional moves can overextend, and the price can remain in a compressed volatility condition for days or weeks until a burst of activity sends the price up or down. Trading breakouts becomes extremely challenging since traders need to be accustomed to seeing their trades in the negative before the market resumes in the direction of the break. 

#3 Regulatory risks

Coinbase CEO has recently stated that regulation is one of the biggest threats to crypto, as it could cause many tokens to become unable to operate. Although cryptocurrency trading negates any risk related to ownership (since traders can sell the CFDs in the market without having a wallet or using an exchange), price action moves might become violent if governments start to crack down on cryptocurrency usage.

Different public officials across the Western World have long been suggesting that crypto is used to finance illicit activities or to bypass the fiscal system. For the time being, many new companies are joining the crypto industry, supporting demand and the bullish risk sentiment. However, regulation is a risk that should never be ignored. 

#4 Industry not yet matured

Bitcoin is the oldest cryptocurrency in the market and its track record goes back to 2008. When compared to other popular asset classes, the industry of crypto is in its infancy and until it completely matures, plenty of ups and turns are bound to occur. 

Trading CFDs on cryptocurrencies comes as a solution for this since traders have short-term exposure, able to get in and out fast when the market changes course. Based on all the pros and cons debated, getting involved in crypto can be done professionally if the trader has diligence and strong discipline.

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