Guide to the Bitcoin CFD Trading

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Why Its Safer to Trade Bitcoin on CFD Than to Own Bitcoins

With Bitcoin now maturing, many now consider it just like any other currency or part of a forex pair. Overall, this great news for Bitcoin. It gives the digital currency another avenue to appeal to users and ultimately helps spread the idea that Bitcoin could well be the future of all currency. Let's look at why that is and why it's safer to trade Bitcoin on CFD than to own Bitcoins.

Because Bitcoin isn’t controlled or maintained by a central bank or government, prices are free to jump and fall at will. Little can be done to stabilise the market. This differs from traditional currencies. Traditional currencies are backed by states, with banks and governments often intervening and introducing policies in order to keep prices level or growing.

This isn’t possible at all with Bitcoin. The price of Bitcoin is absolutely, 100% dictated by the market, with no outside intervention. This is one of the reasons Bitcoin can rise and fall in price so rapidly.

Some may view Bitcoin’s unstable nature as a bit of a problem. Sometimes it’s even possible to generate a return on Bitcoin within a few hours of purchase. In other scenarios, early investors took advantage of Bitcoin’s cheaper value and stockpiled coins, hoping they would increase in value.

This is a fine tactic to take. It has made a lot of people a lot of money. But stocking up on a currency hoping it will increase in price is also incredibly risky. The reason why Bitcoin is such a good asset to trade also makes it incredibly dangerous for traders; the price of Bitcoin fluctuates much more than a traditional currency. This means it's all too easy for the value of Bitcoin investments to steeply decline, which could cost traders a lot of money.

The Alternative: Trade Bitcoin on CFD

However, there is another way people are trading Bitcoin that can be much safer than owning and "holding" Bitcoin. In fact, it’s possible to make money from Bitcoin without ever physically owning any of the currency.

It’s now possible to trade Bitcoin CFDs. CFDs, also known as Contracts for Difference, essentially allow traders to bet on the value of Bitcoin rather than buy and sell Bitcoin currency itself. You can use CFDs to bet on whether the price of Bitcoin will go up or down. The beauty of CFDs is that they don’t require you to actually own the thing you’re betting on. In reality, you’re wagering on the contract itself - so you’re placing money on whether the price will rise or fall, rather than directly trading the currency itself.

For many people, trading Bitcoin on CFD is a solid choice. It allows you to get involved with Bitcoin without jumping through the hoops involved with setting up a Bitcoin wallet and buying Bitcoin from an exchange.

There are numerous advantages that trading Bitcoin on CFD has to trading Bitcoin directly. We will take a look at them below. We will also give some more information involving direct Bitcoin trades, arming you with all the information needed to decide whether CFD trades are the right solution for you.

Bitcoin Ownership can Seem Daunting

Whilst Bitcoin is an extremely easy system to get up and running, the process is quite different to opening a traditional bank account. Because there is no direct body responsible for looking after your Bitcoin, you are solely responsible for keeping your Bitcoins secure.

People store their Bitcoin in a "wallet". Wallets come in a variety of forms. They can exist on the web, on hard drives, on USB keys, even on physical paper. These wallets contain public and private keys. These are essentially like passwords which allow Bitcoin owners to send funds to other wallets. The easiest way to understand the concept of wallets is to think of them as a bank account for Bitcoin.

However, unlike a traditional bank account, if funds go missing from your wallet, then you have no support to get them back. The funds are gone. The same applies if your wallet is stolen or otherwise hijacked. No one will be there to help you get it back.

For this reason, Bitcoin ownership can be dangerous if you do not take the right precautions. In the grand scheme of things, Bitcoin theft is low in comparison to the number of transactions that are carried out every day. However, there have been occasions when large amounts of Bitcoin have been stolen. Bitfinex, a Chinese Bitcoin exchange was recently the target of a $72 million heist. This resulted in the mass loss of Bitcoin from user accounts.

Not only was the Bitcoin lost, this piece of news also had a huge impact on the Bitcoin market. The price of Bitcoin quickly dropped by over 23%, dealing a double blow to the world of Bitcoin. This highlights one of the main issues with Bitcoin ownership: if you do not take security seriously, you could become victim to Bitcoin theft.

However, trading Bitcoin on CFD avoids this situation entirely as you never own any Bitcoin in the first place. You simply own the CFD. Furthermore, in the above scenario, if you had a feeling that the price of Bitcoin was going to decline, it’s possible to profit on this with CFD trades.

This is because with CFDs you are betting on the direction of Bitcoin’s value changing. If you predict movement in the right direct, you profit.

CFDs Allow you to take Advantage of Bitcoin’s Volatile Nature

This is one of the great benefits of trading Bitcoin on CFD. With CFDs, you can make money off of something that is declining in value. For example, let’s imagine that you’ve been following Bitcoin news really closely. You’ve noticed that a big event is about to happen - something that you think will hurt Bitcoin’s value. You could take out a CFD for Bitcoin to lose value, earning you profit.

CFDs are calculated on the difference between two values. For example, if you think the value of Bitcoin will rise, you can bet on that. Your profits will be paid out on the difference between the price of Bitcoin when you took out the CFD and the price when the CFD closed. The same process applies to losses. You lose based on the difference between the opening and closing price.

This gives traders plenty of opportunities to bet on the direction that the value of the cryptocurrency will move. On top of this, even if the movement of the currency is small, it’s still possible to make good profits depending on the point value.

However, trading Bitcoin on CFD comes with some risk too. It’s possible to lose a lot of money if the price goes against you. But there are ways to safeguard losses. It’s possible to introduce an automated stop loss into CFD trades. These will automatically settle any open CFD if losses reach a preset threshold. This is useful within the realms of Bitcoin CFDs as it helps prevent big losses as a result of big Bitcoin market changes. For example, recently, in January 2017, the value of Bitcoin plummeted by 20% in just a few hours.

Everyone holding Bitcoin at that time would have lost 20% of its overall value. However, if someone had an open Bitcoin CFD at that time and had a stop loss set up, their overall loss would have been much lower.

CFDs give the freedom of being directly involved with difficult to predict Bitcoin market, but also offer some protection, which is something lacking from the Bitcoin market as a whole.

CFDs Allow You to Get Paid in Your Native Currency

One of the great things about Bitcoin is that it is a borderless currency. It works in every country and regardless of where you are. However, Bitcoin hasn’t caught on with much of the mainstream audience, yet. This means that if you’re holding Bitcoin, it can actually be pretty tricky to actually spend or withdraw it without having to make use of a Bitcoin exchange.

Yet, with CFDs, you don’t ever need to use a Bitcoin exchange to withdraw your funds. All of your funds can be withdrawn directly from the CFD platform you are using, with the money paid out in your own currency. This is much more straightforward, especially if you’re not very tech savvy or if you don’t want to spend the time researching Bitcoin exchanges.

Another downside to owning Bitcoin is taxation. It’s very important all Bitcoin investments are recorded and kept track of - you will need this information should you need to declare anything on a tax return. However, this can be difficult to stay on top of. It’s generally best practice to keep any Bitcoin split between multiple wallets. This reduces the amount of risk involved with having all of your money in one account, should anything go wrong. As you can imagine, staying on top of multiple accounts, all stored in different locations, can be quite the handful.

Generally, keeping track of money lost or earned through trading Bitcoin on CFD trades is much simpler. Your CFD platform will offer a centralised place that contains all of your important information, such as the amount invested, and the amount earned/lost. This means you only have one thing to stay on top of, making it much more manageable.

In addition to this, CFD trades are extremely common. This means your accountant, if you have one, will definitely be used to dealing with them. With Bitcoin being so new, the information being supplied to accountants is inconsistent. Some accountants may not have any experience in dealing with revenue earned from Bitcoin. Therefore, it could be more straightforward from a tax perspective to trade Bitcoin CFD rather than engaging in direct Bitcoin ownership.

Trading Bitcoin CFDs represents a good balance of flexibility and security

For many, Bitcoin is the future of currency. It’s gained huge traction throughout the world, with many governments paying close attention to how the currency develops.

However, for many investors, the technology is just too new to handle confidently. Bitcoin does not have the same liquidity of other tried and tested currencies. Put more simply: it is much harder to spend and exchange Bitcoin than it is with other, traditional currencies. This can be a real turn-off for potential investors, especially if they don’t want to deal with some of the complexities that Bitcoin brings.

Trading Bitcoin CFDs offers anyone who is interested in Bitcoin markets the chance to join in and profit, without being directly involved with Bitcoin ownership. For many people, this is an ideal solution.

On top of this, trading Bitcoin on CFD can be safer in terms of security of funds and the ability to control losses. It’s important to remember that if you own Bitcoin, you are at the mercy of the market value. If that price drops, all of your Bitcoins drop in value, which could result in huge financial losses. With CFDs, you only lose on the difference in value. As you have no direct investment, this can ensure losses are less extreme than if you were directly invested with the cryptocurrency.

The Bitcoin market offers many ways to profit from it. As you can see, not all of them actually involve owning Bitcoin. You should also remember that CFDs offer you a way to make money off of declining Bitcoin prices. If you pay close attention to developments within the Bitcoin world and think a price drop is imminent, this isn’t a situation you would want to buy Bitcoin in. However, you can bet on this outcome using a CFD and still make money.


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