Buying Altcoins over Bitcoin: A good choice?
joelagbo
Understanding CFD.
lhorgic
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2024-04-30 14:27:30
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Hi friends. It's a new week, still fresh and full of opportunities, so let's do well to get the best out of it. Once again, welcome to my blog, I trust you've been getting enough value from the content I dispense here. And yes! I brought you another interesting topic just as seen in the capture for this post.
As usual am gonna simplify this topic to the best of my ability, making it comprehensive enough for even a novice to grasp. So let's get into it right away guys. Let's talk about CFD.
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The financial market has provided various means of exploring and profiting from it. Be it forex or crypto or others. The means of earning from it keeps evolving and getting better, making sure that no one is boxed. You can explore as much as you want and stick to whatever fits you.
Gone are the days where people buy and hold asset before they could profit from it. Things have evolved, now we have future contracts where you do not even need to hold or own an asset before earning. Who would have thought there would be something like this. Today we have CFD, another means of profiting from the market. Let's explore it right away.
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CFD which means **Contract for Difference** is class of derivative that gives room for traders to predict price movement and profit without actually owning those asset he is looking to benefits from. It has some similarities with the normal futures trading styles but then there is a slight difference to it.
A trader typically earns from the difference between the opening and closing price of an asset.
CFD are traded on the margin section of an exchange, that is if you're considering trading crypto CFD, this is also applicable to forex. What am saying is that we have CFD both in the crypto and forex world and they both function alike. The idea with CFD is that trader can open a long or short position with little capital when compared to the what would be needed if the asset were to traded traditionally.
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CFD are very risky leveraged derivative products and not for novice or newbie who have just hopped into the system. You need to have a very indepth knowledge of the market before deciding to trade CFD's. Basically you earn with CFD when your prediction or speculation goes right. Your profit is calculated by comparing the difference between your opening and closing price for the position opened.
Another thing you need to take note of is that CFD are leveraged which automatically means you are only required to put in a little percentage to open a position while your broker takes care of the rest. This small percentage you put in is referred to as **margin**. With this leverage in place, your profit can either be magnified or loss amplified depending on your prediction.
**A relatable Example is this...**
Take for example that the price of BTC is $200, if am to go by the traditional means of trading, I would have to spend nothing less than $2000 to acquire 10 BTC which automatically give me the right to own the BTC bought.
Now to CFD, you do not need to buy the asset as it a kind of contractual agreement carried out on the exchange. When you visit that section of your exchange, you will see where CFD asset as listed with their pairs i.e BTC/USD and the margin required i.e 10% .
This then means you only need 10% capital of the asset to be traded. In other words you would only need $200 to trade 10 BTC/USD CFD, less than the amount it took by a regular trade to acquire the 10 btc we cited in the first example.
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• **Security:** Take time to check out the security measures put in place by brokers to protect users funds and and information regarding their identity. A good brokers must be able to create an encrypted and two-factors authentication security system coupled with segregated client account.
• **Variety of Asset:** A good broker should be able to provide traders with variety of CFD market ranging from stock to commodities, cryptocurrencies, indicies and so on. This give traders more opportunities to explore the market and profit from it.
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• **Fees and Charges:** Be sure to use a broker or platform where fees and charges are relatively low so that profit can be maximized. Imagine using a broker that charges much on trade, it will surely impact your profit. You might end up making profit for them in a bid to make profit for yourself.
• **Regulation:** regulation helps to protect trader from brokers that are not transparent enough in their dealing. This therefore means that traders must check out for this, ensuring that the broker/platform is regulated by a reputable financial authority.
• **Customer Support:** This is very key, I bet you don't want to opt into a platform or deal with a broker that lacks customer support and it's not just having that in place, but a timely customer support system.. It can be frustrating when you do not have this support as at when needed via diverse means which includes, live chat, emails telephone calls etc. So do well to ensure this is in place.
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I believe by now you have very good knowledge of what contract for Difference (CFD) means. The bottom line is that it a highly risky leverage derivative yet higher rewarding as well. It's a double edged sword that could bring you profit or loss depending on how you wield it.
There you go friends.I would love to wrap it up at this juncture. I want to believe you've gotten so much from this piece. As my usual custom is, I would always encourage that you DYOR to be sure of every financial step you would want to take as I won't be liable for any form of loss encountered by you.
Feel free to share with me your thoughts in the comment section. Thanks for your time once again. Gracias!
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**Disclaimer: This post is made as an education and not investment advice. Digital asset prices are subject to change. All forms of crypto investment have a high risk. I am not a financial advisor, before jumping to any conclusions in this matter please do your own research and consult a financial advisor.**
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Regards
@lhorgic♥️
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