CFD Bitcoin Trading

CFD Bitcoin trading allows investors to earn money from the growth and diminishment in value of the most famous cryptocurrency. Bitcoin’s volatility makes it popular amongst day traders and compatible with multiple strategies. This page will discuss what CFD Bitcoin trading is, its benefits and drawbacks and how to get started. We have also listed the top CFD Bitcoin trading brokers below.

What Is CFD Bitcoin Trading?

What Is Bitcoin?

Bitcoin is a digital currency that was created in 2008 by the pseudonymous Satoshi Nakamoto and released in 2009. Since then, hundreds of other cryptocurrencies with differing characteristics have launched, Bitcoin is the most famous and has by far the greatest market capitalisation, which can be found online on sites like CoinMarketCap.

The cost of one Bitcoin hasn’t been less than USD 5,000 since May 2019, so it is often bought and traded as just a fraction of a whole coin. When you start CFD Bitcoin trading you will likely see the price of one coin quoted in terms of a fiat currency, for example, BTC/USD. This just tells you the cost of one Bitcoin (ticker is ‘BTC’) in terms of the US dollar at the current time.

A cryptocurrency is a currency that exists entirely digitally with all transactions recorded in an online ledger called a blockchain. Created to provide an alternative to fiat currencies, these ledgers have no physical form and are not controlled by any central bank or authority, meaning they are completely decentralised.

CFD bitcoin trading strategy

What Is A CFD?

A contract for difference (CFD) is an agreement between two parties to trade on the change in the price of an asset between the entry and exit positions. The difference between the sell (ask) and buy (bid) prices at any one time is called the ‘spread’. Bitcoin CFD trading is different from traditional investing as it does not entail physically purchasing the coins. This means you do not need to convert any fiat currency into BTC that needs to be stored in a digital wallet, you are instead just betting on the change in its value against your fiat currency, much like a forex CFD.

Bitcoin is a highly volatile asset; in the first half of 2021 alone, its value rose from USD 30,500 to over USD 63,300 and back down to USD 31,500, with many big fluctuations in between these points. This volatility means that CFD trading with Bitcoin offers traders lots of opportunities to benefit from these large swings and trends.

CFD Bitcoin trading also brings the benefit of profiting from drops in the coin’s value through shorting, or speculating that its value will fall. Moreover, CFDs can be traded with leverage, allowing investors to take out margin trading positions much greater than they would otherwise be able to afford.

Pros Of CFD Bitcoin Trading

Benefits of CFD Bitcoin trading include:

  • Large Profits – Bitcoin is a highly volatile cryptocurrency that regularly sees value fluctuations of 10% across just a few hours. This makes it a great choice for day traders who wish to make several trades over a short period of time. CFD Bitcoin trading can also make use of leverage, amplifying any gains made, though also magnifying.
  • No Ownership – CFD Bitcoin trading does not require you to invest and own any of the digital currency itself as you are purely speculating on the price change. This means you can avoid any of the security risks associated with having a digital wallet that can be compromised, as well as avoiding the conversion process and any fees.
  • Shorting – When you enter a Bitcoin CFD trade, you are able to profit from the price of Bitcoin increasing or decreasing, as opposed to traditional trading, which involves buying Bitcoin at a low price to then sell at a higher price.

Cons Of CFD Bitcoin Trading

  • High Risk – Digital currency trading is a high-risk, high-reward activity that can very quickly go wrong. While the leverage in the trades can make big profits seem easily attainable, it can just as likely lead to eyewatering losses, to the point where you can lose all the money you have deposited in your account, even if it wasn’t staked on the trade.
  • Hard To Predict – Bitcoin is unregulated and so, when entering CFD trades, you are at the mercy of random price swings that can occur for any reason. The price of Bitcoin is not affected by monetary policies or economic growth in the same way that typical currencies issued by banks and governments are. Instead, the price can be much more severely impacted by positive and negative media coverage and speculation. This means that even those more experienced with CFD Bitcoin trading may struggle to predict future prices.
  • Associated Costs – There are several fees associated with making CFD Bitcoin trades, such as deposit and withdrawal fees, account opening and closing fees, commission fees and deadline extension fees.

How To Start Bitcoin CFD Trading

Choose A Broker

Brokers are required to sell you Bitcoin CFDs, so you need to think carefully about your selection. There is a huge number of factors to consider, so it can seem quite a daunting task. This guide will run through some of the most important considerations, though a more comprehensive guide can be found on our brokers page.

The first step is easy, though, you must ensure that the brokers offer CFD Bitcoin trading, otherwise you will have wasted time and money. Use this list to see our recommended Bitcoin CFD brokers.

Brokers charge a range of fees for their services, which can include commissions, spread markups and deposit and withdrawal fees. These can quickly add up and eat away at your profits. Different brokers will charge varying quantities for their services in order to stay competitive, so search around and find those that are the best for you. For example, if you plan to make lots of short-term trades, it may be best to avoid brokers with large spreads or commissions.

CFD Bitcoin trading is a very risky activity and so you will want to find a broker that will help to protect you and your funds. Some key things to look out for are negative balance protection, which can save you a lot of money if you plan to use high leverage rates, a range of risk management features and stop orders. Additionally, you could try to find a broker with lots of educational resources and a demo account freely available so that you can get comfortable before risking real capital.

Regulation is another important factor that can help protect you from fraud and dishonesty. The USA has banned all CFD trading, crypto or not, and the UK’s FCA has prohibited the sale of crypto CFDs to retail investors, so brokers like Trading212 cannot provide CFD Bitcoin trading. European-based brokers like Trade Republic and XTrade follow ESMA and CySEC restrictions, allowing digital currency CFDs but with a maximum leverage of 1:2, which is the same as for Australia. CFD Bitcoin trading is heavily regulated, though legal, in Canada.

Choose A Strategy

The high risks associated with leveraged CFDs, coupled with the volatility of Bitcoin, means that you need to be organised and have a clear strategy in place if you want to be successful. There are two types of CFD trades that you can make: ‘long’ and ‘short’.

Long Positions – This is where you believe that the value of Bitcoin is going to increase and, in order to capitalise, you set up the CFD such that you buy Bitcoin at the entry position and sell it when you close, hopefully after the price has increased.

Short Positions – When you believe that the price of Bitcoin is going to plummet, you set up a short position. This is much like ‘borrowing’ some Bitcoin from your broker and immediately selling it when you open the position. Once the price falls, you then buy it back and sell it to the broker at the entry price.

Strategies themselves are more numerous and varied than brokers, with attempts to capitalise on a massive range of fundamental and technical analysis techniques. Two popular strategies are outlined below, though more detail and examples can be found here.

Breakout trading is a Bitcoin CFD trading strategy whereby you enter the trade when the price of Bitcoin moves outside of one of two boundaries. The upper price boundary is called the ‘resistance’ level and the lower is called a support. The premise of the strategy is that the asset will bounce between these two until there is a breakout when the price value crosses one, at which point a new trend is identified, which traders capitalise upon.

Scalping involves making many small and frequent leveraged trades throughout the day. The philosophy of this strategy is to close a trade almost as soon as it becomes profitable so that there is less opportunity for the market to swing against you. The very slim profit margins of each trade mean that scalpers often use maximum leverage to open very large positions to earn any meaningful money from their successes.

bitcoin CFD trading in canada and australia

Trading Tips

Research Your Trades

CFD Bitcoin trading is not an easy task and you should use all of the resources that are available to you. As the price of Bitcoin can be affected by both positive and negative press, you should keep track of any related news to help you to predict any movements. Additionally, you can research price fluctuations in the past to see if you can identify any patterns to capitalise on. As well as the news, you should keep learning about Bitcoin and CFDs by using books, ebooks, videos, training courses and forums online.

Demo Accounts

Many brokers will offer you demo accounts to practise trading before risking real capital. This is something you should take advantage of in order to build experience with CFD Bitcoin trading and learn about the market without any monetary risks. Demo accounts use virtual funds in a simulated, real-time trading environment and let you learn to trade, test the broker and platform, trial strategies and refine risk management approaches.

Record Your Trades

Keep track of all the trades you have made, as well as any key information like entry and exit positions, why you made the trade, a review of the trade and what it taught you. Reflecting on your CFD Bitcoin trading record can help you to learn what strategies you have success with and improve yourself as a trader.

Risk Tolerance

Before making any trades, it is important to define what degree of risk you are happy to tolerate. This can help to avoid making any rash decisions or bad trades. CFD Bitcoin trading can be emotional at times because of the high volatility and capital involved, potentially clouding your better judgement, so having a clear cut risk appetite can stop this getting the better of you.

Final Word On CFD Bitcoin Trading

CFD Bitcoin trading can be a highly rewarding activity given the very high volatility of the asset. However, this can just as easily devastate you with big losses, especially when margin trading. That being said, if you are patient and wish to profit from short-term price trends in both directions, CFD Bitcoin trading could be for you. Check out our advice above and see our list of top Bitcoin CFD brokers here.

FAQs

What Is Bitcoin?

Bitcoin is a purely digital form of currency called a ‘cryptocurrency’. The first of its kind, it is not issued by any central bank or governing authority and was created as an alternative to fiat currencies.

How Much Money Do I Need To Start CFD Bitcoin Trading?

CFD Bitcoin trading is much akin to betting in that the investor can put as much or as little money as they wish (to a point) on the trade. The use of leverage can also increase market exposure by allowing traders to front only a portion of a trade’s stake. Given the derivative nature of CFDs, you do not need to be able to purchase one whole Bitcoin to begin trading.

What Is A CFD?

A Contract For Difference (CFD) is an agreement between two parties to trade on the change in price of an asset. This is different from traditional trading as it does not transfer ownership of the underlying asset and profits can be made by both positive and negative price movements.

Where Can I Make CFD Bitcoin Trades?

CFD Bitcoin trading is a heavily regulated activity so your access to brokers that permit it may be limited by where you live. Regulated brokers are generally the recommended go to and you can check if one is regulated by looking on the website of your country’s financial regulator to see if it is listed there.

Do I Need A Digital Wallet For CFD Bitcoin Trading?

No, you do not need a digital wallet. Digital wallets are used when you own Bitcoin, which is not the case for CFD Bitcoin trading.