CFD Trading Added as a New Instrument to the Cryptocurrency Trading Platform
The online trading business came into being when internet was introduced as a new platform where people could interact with each other without the need of travelling. Then the internet made its way to every household and before the world could know, it made itself a utility for every house as people started to use their laptops, desktops, tablets and other gadgets to interact with each other.
With the passage of time, the internet took another step towards the advancement of its technology and adaptability and started offering online opportunities to the internet users to perform trading in instruments such as forex, stocks, indices, commodity and many more. Then, came the cryptocurrency and blockchain industry that changed the way people perceived world economy, finances and money making.
With the advent of cryptocurrencies, a new way of making money and transactions was introduced that was decentralized in nature, meaning that it was neither bound by any laws nor regulations that would govern the cryptocurrency universe. As far as people’s concerns and uncertainties were concerned, Cryptocurrency exchanges such as Kraken & Binance showed up and took care of these concerns by ensuring that users’ assets and transactions were safe and secure without fear of any cyber-attack or stealing of digital assets.
Since then, the cryptocurrency and blockchain industry have alone looked ahead and are constantly going through the phase of development and advancements, ensuring that the users are able to utilize them as they please without being intimidated of any outside entity.
Traditional Cryptocurrency Trading
Similar to other types of trading, cryptocurrency also requires the users to performing trading either by converting their fiat money to cryptocurrencies with the help of a crypto-exchange and then sell them to make profits, mine cryptocurrencies and keep them stored until their prices mature and sell them to earn profits from the difference in the prices or mine/buy cryptocurrencies and exchange/trade them with other currencies to make profits based on the price difference.
Why Was CFD Needed?
Although, the traditional crypto-trading seems to be very convenient sources of trading where one is only dependent on their own trading skills and is patient enough to keep the earned coins safe until they mature and then sell them to make profits. However, there is one drawback to it, and that is, finances. For someone who is currently unemployed and is hardly able to make ends meet, he/she would not be able to afford buying cryptocurrencies in bulk in order as they do not have any money on them.
Based on the above, the idea of doing crypto-trading for a needy person would be somewhat impossible. Therefore, to help eradicate this problem, the cryptocurrency came up with a solution, which was called ‘CFD Trading’ for cryptocurrency. CFD Trading is not an instrument that was developed solely for cryptocurrencies but was an instrument that was already being used in other online trading instruments such as Forex, Stocks, and Indices etc.
To ensure that every individual was able to make full use of the crypto-trading platform, the cryptocurrency community managed to add CFD trading to this platform.
How Does CFD Trading Work?
The term CFD stands for ‘Contracts-For-Difference’, which is somewhat self-explanatory. This particular type of crypto-trading is unique as the users are not required to own a cryptocurrency in order to perform this trade. In CFD trading (cryptocurrency), the users are not required to open a position in the crypto-market. What it means is that they do not have to buy the crypto and put it out there in the crypto market, but choose a certain cryptocurrency and predict whether the price of that asset would rise or fall against the current price.
They also need to pre-decide the date/time of when it would take place along with the quantity of the crypto coins that they would be willing to go for. All these conditions are put in the form of a contract with a pre-decided date acting as the contract expiration. The cryptocurrency exchanges that provide users with this platform tend to act as the broker providing them with the simulation of the real-time crypto market.
If the deal goes in the favor of the users, they end up making the profit against the different in the price versus the quantity of the product and if otherwise, then the users are required to pay the different versus the product quantity to the broker (exchange).