Throughout 2018 most of the online brokers had managed to include cryptocurrency-related CFDs among their trading instruments, as digital assets were widely regarded as “the money of the future.”
However, as we have seen last year, cryptocurrencies have strong and weak points as well, so today we will try to dig deeper into the pros and cons of crypto trading to make you fully understand the process and make documented decisions.
Pros of crypto trading
Following a mind-blowing performance in 2017, all cryptocurrencies faced severe losses during 2018, some of them losing more than 95 percent of their value. Since it was possible to be just long in the market, there had been people who faced significant losses on their holdings and this brings us to the first positive aspect of crypto trading.
With CFDs based on cryptocurrencies, traders are able to enter the market both with a buy and a sell order. You could go long or short at any time, even though you do not own the underlying instrument.
Second of all, since volatility is one of the main characteristics of cryptocurrencies, trading crypto CFDs will fasten the process and allow you to take advantage of market movements very fast. Last, but not least, you are able to use leverage, which means that you are able to potentially increase profitability if you are right, but also increase losses if you are wrong.
Cons of crypto trading
Moving further, you should be fully aware that cryptocurrency trading is not perfect. It has some downfalls which might impact you negatively if not managed appropriately. Since cryptocurrencies carry high volatility, brokers will usually charge you higher spreads, as compared to forex pairs, or indices. To counteract this flaw, traders usually tend to focus on the most popular tokens such as Bitcoin, Ether, or XRP.
Also, you must understand that you are trading a Contract for Difference which tracks the price of a particular cryptocurrency. You do not become the owner, but you are using a tool that enables you to profit from the short-term price movements without having to go through a slow process of using a traditional exchange.
The third and final negative aspect is related to regulation. If we analyze the situation at a global scale, there’s still a sort of regulatory unclarity, with some countries having no regulation at all, and some do.
It’s up to you to put these aspects in the balance, study in-depth what cryptocurrencies are, and only then decide if it’s appropriate for you to start trading cryptocurrency-related instruments.