Before you try and understand the advantages and disadvantages of Bitcoin CFD
trading it is essential that you understand what it is. The full form of the term CFD is
contract for difference. In trading parlance it can be called a derivative. In these cases
you never really own the original asset. Rather you are trading on its price. It is almost
similar to regular trading in the way that it works. In case you have opened a buy/long
position you will make a profit in case the asset’s price rises. In case you have opened a
sell/short position the profit will be made in case the price of the asset came down.
Advantages of Bitcoin CFD trading
One of the first major advantages of Bitcoin CFD trading is the ability to open short
trades. If you think that the price of Bitcoin would drop you can open a sell/short trade
and thus short the currency. This is not something that you would be able to do if you
had an actual Bitcoin. As far as trading strategy is concerned you get a lot more
flexibility with as a trader. Apart from this you also have automated strategies and high
frequency trading.
Disadvantages of Bitcoin CFD trading
The biggest disadvantage of Bitcoin CFD trading is that there is little historical support
for such kind of trading. It also does not help that its resistance levels are not that high.
Cryptocurrencies have not been there for long enough for you to get enough information
about their resistance and support levels, which are such key parts of any trading
activity. Even taking into account all these years of price action the track record can at
best be described as a short one. This is especially evident when you compare it to
stocks, commodities, and currencies. In case of such trades you will get data on key
price levels from the previous decade as well.
The second biggest danger in this case is that of trading blindly just on the basis of
trends. A lot of first time and relatively fresher traders would be attracted to Bitcoin on
the basis of the continued rise of its prices. They could be under the impression that all
they need to do in trading is buying and then making off with the profits. The biggest
problem with this situation is that trends are not everlasting.
Recommended & Regulated Broker Allowing Bitcoin CFD trading:
