Whenever you want to trade with cryptocurrencies there are two routes you can take. One is to join a crypto exchange and trade with actual cryptocurrencies or you can use a broker that lets you trade with crypto CFDs, which are different from actual cryptos. These differences are what we will be taking a look at today, and also see which one is best for trading.
Trading actual crypto
The most popular way of trading cryptocurrencies is to just buy them and hang on till the price goes up, like with stocks. Whenever you are trading on an exchange you are most likely trading with regular cryptocurrencies. What we mean by that is that you are buying actual tokens that are yours and you can transfer and do whatever you want with them. This is the most common trading way to trade because this goes well with crypto investing and you are in control of the assets you are buying.
The spot market is where you can trade with actual crypto. When visiting this market you will be given a list of two tokens that have been paired together, and in order to trade with them, you need to own the quota currency, the second in the pair, in order to buy the base currency, the crypto that is first in pair.
Trading with Crypto CFD
CFD stands for Contract For Difference and by trading with them, you are betting on price movement rather than buying and selling actual assets. So in the case of crypto CFDs, you are trading with crypto prices, so you are betting on the crypto price either going up or down. Whenever you open a crypto CFD order, you are not buying these currencies and don’t have possession of actual tokens, and simply own contracts associated with their prices.
When joining the futures market to trade with Crypto CFDs, you are essentially betting on price changes with regular money and don’t need to own any cryptocurrency. But there are also some CFD markets, mainly on crypto exchanges, where you can open these futures contracts using certain cryptocurrencies. What this means is that if you think that price is going to go up, you open a long contract and if the price goes up you get profits, if you think the price is going down, open a short position and you win if the price falls.
Should you trade with actual crypto or crypto CFD?
If we take a look at it from the surface, you might think that there are not too many differences when it comes to trading with these assets, but there are a lot and these differences determine whether we should trade with one or the other. Saying that one is better than the other would be an incorrect statement, as each of them has its own niches and are better suited to different types of traders.
If you are someone who is fully into cryptocurrencies and deals with them every day, then trading on the spot market might be the best option for you. You can buy one currency and keep it until you see it will be best to sell it, then buy a different one. This way you also get some hands-on experience with cryptocurrencies that will help you learn more about them and find useful information that might help you on your crypto journey.
You also have the ability to interact with other blockchain technology and learn, such as crypto wallets, miners, different protocols and projects, and so on. But this also creates a requirement to know these things to a certain level in order to have a successful trading journey. The more you know about crypto the better your trading profits will be,
On the other hand, if you are someone that is not very familiar with cryptocurrencies and look at them as a good asset to trade with, simply trading CFDs might be a better option. Since CFDs are not actual tokens and simply contracts, meaning you don’t need to know any technical details about blockchain or own any third-party blockchain-related product in order to get the full experience; they are a good choice for many traders. One of the biggest advantages of using CFDs is the ability to use leverage when trading. With the help of leverage, you can increase the size of your trading power, because the broker lends you large sums of money to trade with, and since crypto has high volatility, you can make significant profits based on the money you actually spent to open the trade.
Some of the most popular Crypto CFD pairs
When you are trading with Crypto CFDs, you will be seeing familiar trading pairs on most exchanges or brokers. These pairs are the ones most people trade with, while lesser-traded pairs might differ depending on the exchange you are using. Here we will be taking a look at some of the most common pairs that you will encounter.
This is the most common crypto CFD trading pair on every broker or exchange. This is due to the fact that these are two of the biggest cryptocurrencies in the world, so there is a lot of interest in both of these tokens. Excluding pairs that have fiat in them, this pair has the highest trading volume every day.
If we are talking about the pair that has the highest trading volume on every broker’s website the honor goes to BTC/USD. Traders on most brokerage sites don’t have actual cryptocurrencies so they open and close Bitcoin trades using USD. Since USD is the most commonly accepted currency on any platform and the most comfortable currency to use, the fact that this is the most commonly used crypto trading pair on brokers’ sites should not be surprising.
Another commonly paired crypto that comes with USD is the Ethereum token ETH. As we mentioned Ethereum is the second-largest cryptocurrency and the biggest blockchain in the world. Ethereum is the most commonly used currency on the market and has the highest daily transaction volumes on a constant basis when excluding stablecoins such as USDT and USDC. Seeing this, it should be clear why ETH/USD is a really popular crypto CFD to trade with.
FAQs on differences between trading actual crypto vs crypto CFDs
Is actual crypto better than crypto CFD?
It depends on what your goals with cryptocurrencies are. If you are someone who wishes to just trade with crypto and nothing else, then using crypto CFDs is better, as you don’t need to deal with different parts of a blockchain and will have access to better trading tools and benefits. While if you are interested in crypto and not just trading with it, then trading and using actual crypto will be more beneficial to you.
Are crypto CFDs legal?
If you live in the United States, most states consider crypto CFDs illegal and you are unable to trade with them. But outside the U.S., most countries consider them to be legal, but there are heavy regulations in place to make sure everything is done in a legit and legal manner.