By this time, let’s assume that you have studied the cryptocurrency market to a healthy degree, as well as having devoted considerable time to learning the art of trading. Now the question is: How do I go about buying, selling, and trading the cryptocurrencies of my choice? There are a number of options that you will need to consider before you arrive at an answer to this very question that suits your needs and is one that you feel comfortable with pursuing. Do you want to deal with an exchange? Would you prefer a traditional broker? Would you like to try your hand at Contracts for Difference (CFDs)?
In each of these environments, you will be confronted with similar pricing structures, and fees may also apply, depending upon how your trading agreement reads. Quotes will be stated using two numbers, separated by a slash or stated singularly. The first number, the one to the left of the slash is referred to as the “Bid” price, and the second number to the right of the slash is referred to as the “Offer” or the “Ask” price. The “Bid” price is the price in a domestic currency that traders are willing to pay for a Bitcoin, for example, if you are selling, while the “Offer” or “Ask” price is the price that traders are prepared to sell a Bitcoin if you are buying. The difference between the two numbers is known as the “Bid/Ask spread”. The broker’s compensation is usually defined by this spread amount.
Cryptocurrency exchanges have sprung up across the planet in recent years, all privately owned and unregulated. Their transaction platforms are primarily proprietary and lack the tools that traders are more accustomed to seeing with a traditional broker. Typical “Buy-and-Hold” investors will find these platforms suitable for placing positions in the major cryptos, and, for the many arcane coin systems and Initial Coin Offerings, one may have a limited choice of exchanges willing to make a market for your chosen crypto asset offering.
Traditional brokers in domestic markets, however, have jumped at this opportunity to serve a new client base, and now support over-the-counter (OTC) buying and selling in the crypto space. The primary advantage with these brokers is that you will have access to the highly popular Metatrader series of platform products, i.e., MT4 or MT5, or the proprietary platform offered by the broker. In any event, this trading environment might feel more conducive for trading with less exchange risk, better trading tools and customer service, and the ability to go both long and short on an asset.
Many traditional brokers also offer CFDs, a specialized trading product that has gained in popularity over recent years. CFDs have been around since the nineties and offer a way “to speculate (buy or sell) on the rise and fall of financial products, typically Stocks, Forex, Indices, Commodities, and Cryptocurrencies”. You also employ leverage, which can magnify gains, if the market moves in your favour, or magnify losses, if the market moves against you. You literally open a long or short position, specifying the amount and Stop/Loss orders at the outset, and then close the position, based upon the gain or loss recorded. CFDs originated as a hedging tool in the UK, as a special-purpose derivative.
CFDs are high risk, and you will from time to time encounter disclaimers such as this one: “Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information”. The European Securities and Markets Authorities, with concurrence from the FCA in the UK, is concerned about CFD risk and has recently limited leverage to “2:1” in the EU on a temporary basis. The SEC in the U.S. presently does not permit CFD trading in that market.
How does one deal effectively with mitigating this risk? Knowledge awareness, specialized training, and hours of practice on a demo system with a step-by-step trading plan are the keys to success in any asset class with high-risk demographics. CFDs are in that category, but this website contains ample training guides and tips for trading CFDs. These materials are crafted for the trader that wants to get to the heart of the matter and to have things explained in an easy to understand way. These materials follow sound advice: “Take care of the downside, and the upside will look after itself”.