Crypto Academy Season 2: Week 2/Homework post for @kouba01/

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Am gladdened once again for yet another opportunity of this wonderful edition by the cryptoacademy. From the lecture offered by Professor @Kouba01, reading through this lecture series have given me a better insight as to how cryptocurrency CFDs works and it’s important. To this, I will be writing based on the task given by the Professor.

What is Cryptocurrency CFD?

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CFD as the abbreviations implies means Contract for Difference (CFD). It is a contract agreement that comes with a difference not minding the instabilities of digital currencies in the crypto market. It represents a contract between two entities i.e an investor or trader and a broker. This contract enables the investor to have access to the movement of price of any cryptocurrency (examples: Bitcoin, Ethereum, litecoin, etc.) without owning or buying the currency itself. It is a flexible contract that allows traders to buy and sell positions either for long term or short term whenever they want. While trading in CFDs, you can sell or buy an asset at the market price and gain more from the inflated price swings in either direction. They offer every investor trainings and lessons on how to trade on their value.

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CFDs enable investors to take risk on the value of an asset without having to own the asset. It helps in the trading of digital assets.
In CFDs, you can profit even when the price goes up or vice versa and as well you can lose more than your account total value. CFDs provides a tax efficient way of profiting from the change in value of an asset without having to buy anything.

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CFDs works almost like the traditional financial system. Take for instance, in a business where a person after predicting an increase in the market price of a good may be due to anticipated inflation, invest some amount of money in buying a particular good in a lower price, thereafter there is an increase as predicted coming to reality, the investor now sells the good at the present cost price and earns a larger profit margin of that particular good. This is exactly how CFD works, but here it deals with digital assets and it’s completely an agreement between the trader and the broker. Here, the trader or investor takes after the broker’s terms of business before a start-up of the deal. This is why the word ‘contract’ or ‘agreement’ comes in to play.

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In CFDs, two things are involved which are: buying and selling and both comes with its value. It might be at a loss or at a gain depending on the market value of the digital asset you are into. CFDs offers to the investors the opportunity of earning in both ways either by selling or buying.

Advantages of trading Cryptocurrency through CFDs

• Trading with CFDs gives investors opportunities to earn from selling orders to go short or buying orders to go long even when in upward and downward moves.

• With the use of leverage in CFDs, it enables investors to earn better

• Trading with CFDs gives opportunity to investors to access the larger market with a low capital

• Using CFDs to trade, allows investors to profitability even when there is a downward and upward trend in the market price of the digital assets

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How do I know if cryptocurrency CFDs are suitable for my trading strategy?

Suitability of cryptocurrency CFDs to my trading strategy is all dependent on the type and features of my trading. CFDs is one which goes for both uptrend or downtrend so I believe it will suit my trading strategy because I will always want to make profit from my assets even when the price is increasing or decreasing. Also in addition to this, in an investment whereby there are no much capital to start up with, I believe CFDs will be suitable for it. I also believe that due to easy forecasting of trending price of assets which CFDs offers, it will suit my trading strategies. Lastly, as an investor, I believe and know that in every business there is always a risk of gain or loss, with my being able to tolerate this risk CFDs will be suitable for my trading strategy.

Are CFDs risky financial products?

In any business or investment, there is always a risk involved. It only takes the business broker or the trader some measures of averting the risk. CFDs are risky financial products, because it all talks about investment, and the investment here is all about buying and selling of which there market volatility of cryptocurrency and this makes it prone to risk.

It only needs an investor who is ready to tolerate risk and as well have the mind of an investor which is either to gain or loss. In CFDs which operate on leverage and as well with the leverage there is always a risk attached to it. The more investment, the higher leverage and as such the higher and greater risk you are prone to. There is risk in CFDs because the instability of prices of assets which the trader is trading on can make you lose money and at some extend can make you face account liquidation.

Do all brokers offer cryptocurrency CFDs?

Based on this question, not all brokers offer cryptocurrency CFDs, although they are a few that do offer CFDs such as: eToro, Plus500, City Index, HYCM, XTB, Swissquote, etc. these are a few of those that offer the contract for cryptocurrency difference.

Explain how you can trade with cryptocurrency CFDs on one of the brokers (Using a demo account)

Using a demo account to trade with cryptocurrency CFDs on one of the brokers involves the following processes:
Firstly, I will use be using the eToro’s url “https://www.etoro.com/” to creating a demo account. How do I do this?
I will visit the eToro web page which is (https://www.etoro.com/)
On the home page of eToro, click on the “JOIN NOW” icon at the top right corner as shown below.

Enter your preferred username, email address and a strong password and also agree to the eToro’s terms and conditions and also the private policy and cookies policy by clicking on the box. And after this you click on the Create Account option below

Once the above step is carried out, your demo account will be created. After this step, you will be taken to the main page where you can deposit funds into your account.
But before funding your account, you have to click on the “Complete Profile” option at the top left corner below your username. This is where you will be asked to give details about yourself as per information.

After the above step, you click on the “Deposit Funds” option at the left bottom part of the page. This will take you to a page where you will be able to deposit your fund by entering the amount you want to trade with and also the type of payment method you will use before proceeding to click on the “Deposit” option as shown below.

In carry out a Demo Trade, you must first of all create a Demo account as shown above. Then you click on the drop down option below your name at the top left corner of the page. It will show two options: you select on virtual portfolio option as shown below. This will take you to your virtual account where a demo trading can be carried out.

After this, you click on the “Trade Markets” icon by the middle right of the page as shown below which will take you to a page so you can choose an asset to trade on. After this, you click on the crypto option to choose an asset of which in this case, I choose Ethereum and clicked on the “Trade” option.
After I opened a trade, by buying some units of Ethereum worth some amount of money, and then clicked on the “Open Trade” option to start trading as shown below.

Conclusion
Cryptocurrency CFDs is an investment avenue where traders or investors are given every possible right to trading a particular asset based on the agreement between the trader and the broker dependent on the terms of contract of the broker. Cryptocurrency CFDs involves an investment where the trader gains even at the rise or fall of the digital asset traded on.

Thanks to professor @kouba01 for a great lecture of this such. It has really enlightened me more on the trading intricacies as per the risk involved in it. Thanks for reading through my post.