Month: January 2021
A CFD is a contract between a buyer and a seller. In this case, the seller is the CFD broker and you are the buyer. The buyer does not become the owner of the underlying instrument, but receives the profit (or pays the loss) when the price rises or falls. This only happens when you close your CFD position.With a CFD you as a trader can bet on a rise (long) or a fall in the price of, for example, a stock, but also on the price of gold or bitcoin. So by buying a CFD you are virtually buying a stock.
- Contracts for Difference or CFD, as they are abbreviated, are a financial product that allows you to benefit from increases or decreases in the price of the underlying instrument. These instruments can be: indices, stocks, currencies, commodities and nowadays also crypto.
What are the advantages of investing or trading CFDs?
The biggest advantage of CFDs is that you do not have to pay the full value of your purchase at the same time and can make use of leverage. This allows you to open positions that are larger than your deposit.
- The advantage of this is that you can make more profit when you are right and the price moves in the right direction. The disadvantage of this of course is that you also make more losses when you are wrong and the price moves in the opposite direction.
- By the way, you can limit this risk of loss by making use of a stop loss. A stop loss is as it were an emergency brake which automatically closes the position at a price of your choice.
When trading CFDs, you are required to have a minimum amount of cover on your account in order to be able to hedge any losses. This is called margin and is a type of insurance for the CFD broker.
Here are a few more benefits of CFD trading
- Usually low transaction costs
- Lever operation
- Benefit from increases as well as decreases in share prices
- Large range of instruments such as stocks, commodities, crypto, etc.
- Most CFDs do not have a fixed end date. So you decide when you sell
- Example of a CFD long trade
- A CFD trade is the whole process from opening a position to closing it. below I will give you an example of a trade on the Netflix stock by means of a CFD.
The reason I was able to take this trade was because my broker had added a number of crypto’s to the CFD offer. I don’t have to think about parking my money at one of the crypto trading exchanges. You could still risk a few tens, but if you want to trade with serious money you run quite a bit of risk.
- Nobody supervises
- No regulation at all
- No guarantee fund
- Big chance of hacks
- Stories about manipulation
- Limited order possibilities
So a lot can go wrong and you don’t have a leg to stand on when something happens. There are plenty of stories about traders who can’t access their account and exchanges that even manipulate the price to liquidate traders. Also last year when i was heavily invested in ASML aandeel at vergelijk-gratis, i took a pretty bad hit when one of the brokers decided to shut down their service.
Other advantages of regulated brokers over crypto exchanges are:
- Segregated funds (customers’ money is held in separate accounts)
- Guarantee fund (insurance for customers should something go wrong at the broker)
- Regulated crypto trading brokers with their own wallet
- If you would rather trade real coins or want to invest for the longer term, there are also brokers that are regulated at European level and therefore offer much more security. In addition, I would never leave coins on an exchange for the long term, but on my own (hardware) wallet.
eToro is still one of the best brokers available in The Netherlands. They are really a forerunner in terms of technology and now also have their own wallet. So you can safely trade crypto there and buy it for the long term.
Enormous volatility in crypto trading
When it comes to volatility, crypto trading currently tops the list. Price movements of 50% or 100% per day no one is surprised anymore, especially when it comes to the so-called shitcoins that have a very low Satoshi value. The knife cuts both ways in case of volatility. You can only make money trading and investing if the price moves. And the more the price moves, the more there is to be earned. If you have the right experience and know how risk management works, you can adjust the position size accordingly. But most crypto traders are beginners and have no idea about this, which considerably increases the chance of going stretched compared to other markets that move less violently.
Barely scheduled news in crypto trading
There is no shortage of news items when it comes to crypto. With the rise in popularity of crypto trading, thousands of (so-called) experts, news sites and Twitter accounts have been added, all sending their own messages into the world. Anyone can write anything and almost everyone is for sale. That may be true in traditional media, but in crypto it seems to be a bit worse. There is always a shiller out there who wants to plug your shitcoin for the right price.