When you trade cryptocurrency, you are speculating on whether your chosen market will rise or fall in value without taking ownership of the digital asset. In short, you are trading using derivative products such as contracts for difference (CFDs).
Why Trade Cryptocurrency?
The cryptocurrency market offers several unique benefits for traders, from its high volatility to flexible trading hours. Here’s a detailed look at the major advantages.
High Market Volatility
Although the cryptocurrency market is relatively new, it has experienced significant volatility due to heavy short-term speculative interest. For instance, between October 2017 and October 2018, the price of Bitcoin reached a high of nearly $20,000 and a low of around $5,800. Other cryptocurrencies may be somewhat more stable, but new technologies often attract speculative activity.
This volatility is part of what makes the crypto market so dynamic. Rapid intraday price movements can offer numerous opportunities to go long or short, though they also increase risk. If you decide to enter this market, ensure you’ve done your research and have a solid risk management strategy in place.
24/7 Market Availability
Cryptocurrency markets are generally open for trading 24 hours a day, seven days a week, due to their decentralized nature. Trading occurs directly between individuals or through cryptocurrency exchanges around the world. However, trading may be temporarily suspended during infrastructure upgrades or “forks.”
At most brokers, you can trade cryptocurrency versus fiat currencies like the US dollar from 4 am Saturday to 10 pm Friday (GMT).
Improved Liquidity
Liquidity refers to how quickly and easily a cryptocurrency can be converted into cash without significantly affecting its market price. High liquidity often leads to better pricing, faster transaction times, and more accurate technical analysis.
Generally, the cryptocurrency market is considered illiquid because trading is fragmented across many exchanges. Even relatively small trades can have a large impact on market prices, contributing to the market’s notorious volatility.
However, when you trade cryptocurrency CFDs, you can often access better liquidity. Many brokers aggregate prices from multiple venues, which can help your trades execute more quickly and at a lower cost.
Go Long or Short with Flexibility
When you buy cryptocurrency, you’re expecting the asset to appreciate. But when you trade based on crypto prices, you can also profit from falling markets—this is known as going short.
For example, suppose you believe the market will decline and decide to open a short CFD position on the price of Ethereum. If you’re right and Ethereum falls against the US dollar, your trade will be profitable. If it rises, you’ll incur a loss.
Use Leverage
Since CFD trading is a leveraged product, it allows you to open a position by depositing only a fraction of the trade’s full value as margin. This means you can gain significant exposure to the cryptocurrency market with a relatively small amount of capital.
Your profit or loss is calculated based on the full value of the position when it’s closed. So, while leveraged trading offers the potential for substantial returns from a small initial outlay, it can also magnify losses—which may exceed your initial deposit. That’s why it’s essential to consider the total value of a leveraged position before trading.
It’s also important to implement a strong risk management strategy that includes appropriate stop-loss and limit orders.
Faster Account Setup
When you buy cryptocurrency, you typically need to use an exchange, which requires creating an account and storing crypto in your own digital wallet. This process can be restrictive and time-consuming.
However, when trading crypto CFDs, you don’t interact directly with exchanges. Your broker holds the underlying market exposure on your behalf. You won’t need to set up or manage an exchange account, allowing you to get started much faster. In fact, with a simple application form and instant online verification, you can often begin trading in under five minutes.
Should You Buy or Trade Cryptocurrency?
Before deciding whether to buy or trade cryptocurrency, it’s important to understand the key differences between these two approaches.
You Might Prefer Buying Cryptocurrency If…
- You want full ownership of the cryptocurrency.
- You’re willing to pay the full value of the asset upfront.
- You prefer direct exposure via a single exchange account.
- You don’t mind waiting for an exchange account to be set up.
- You’re comfortable with potential deposit limits or upfront restrictions.
- You don’t mind paying extra fees for deposits or withdrawals.
You Might Prefer Trading Cryptocurrency CFDs If…
- You want to speculate on crypto prices without owning the digital asset.
- You want to maximize your exposure with a small initial outlay.
- You prefer gaining exposure to multiple exchanges via one account.
- You want to start trading right away.
- You don’t want maximum deposit limits.
- You prefer avoiding deposit and withdrawal fees.
Frequently Asked Questions
What is the main advantage of trading cryptocurrencies?
The main advantage is the ability to profit from both rising and falling markets without owning the underlying asset. This flexibility, combined with high volatility and extended trading hours, offers numerous opportunities for traders.
How does leverage work in crypto trading?
Leverage allows you to open a larger position with a relatively small deposit. For example, with 10:1 leverage, you can control $10,000 worth of crypto with $1,000. While this can amplify profits, it also increases potential losses.
Can I trade cryptocurrency 24/7?
Yes, most cryptocurrency markets operate 24 hours a day, seven days a week, thanks to their decentralized nature. However, some brokers may have specific trading hours or temporary suspensions during market updates.
What is the difference between buying crypto and trading CFDs?
Buying cryptocurrency means you own the asset and store it in a wallet. Trading CFDs involves speculating on price movements without ownership. CFDs also offer leverage and the ability to short-sell, which aren’t available when buying outright.
Is crypto trading safe?
Like all forms of trading, crypto trading involves risk—especially due to high volatility and leverage. It’s essential to research thoroughly, use risk management tools, and only trade with capital you can afford to lose.
How can I manage risk when trading crypto?
You can manage risk by using stop-loss orders, diversifying your trades, avoiding over-leveraging, and staying informed about market news and trends. 👉 Explore more risk management strategies
Whether you’re new to cryptocurrency or an experienced trader, understanding these advantages can help you make more informed decisions and develop a strategy that suits your goals.