Cryptocurrency CFDs Pros And Cons: Are Contract For Differences Better Than Bitcoin Exchanges For Trading?


With crypto CFDs becoming more popular, retail investors are beginning to wonder if it’s better than crypto exchanges and vice versa.

With more financial investment companies and platforms offering CFDs as an alternative to cryptocurrency exchanges, more people want to know the better option for their trading and investment needs.

In this article about CFDs, we’ll help you understand why their pros and cons. The rest of the decision after reading this is left to you. We just want to make sure that you have all the information available to you to make an informed decision. That said, let’s explore crypto CFDs pros and cons.

Pros Of Crypto CFDs

Cryptocurrency CFDs have quite the benefits and can be great for traders and investors alike.

Leverage Options

For many crypto traders or retail investors, leverage is a foreign concept. Yet, this is a staple in regular trading markets like stocks, bonds, equities and commodities. Traditional brokerage and trading platforms have and use these options to help traders make a lot more money.

With leverage, you only need a fraction of your capital to make a lot of money. In case you’re unfamiliar with the concept, leverage is simply borrowing a brokers funds and trading with multiple returns.

For example, let’s assume you intend to trade to bitcoin CFDs with just $30. But, since $30 can only go so far, you apply for a leverage 1:40. This means that for every dollar invested, you have access to $40 in credit, essentially making your “trading capital” $1200. Using this, your trade value easily be up to $1200.

However, as with all loans, once you’ve made your profits, you would have to pay back the “credit” with some interest, seeing as they “loaned” you some more money to help facilitate your trades and increase your profit margins.

While this is great, it’s equally important to remember that leverage is also disadvantageous if the trades don’t go in your favor. Because of the leverage, just one point drop can wipe out your entire capital.

This is why your leverages must be moderate. In fact, most CFD platforms have leverage limits that coincide with your available capital. This is to make sure that they can secure their funds if you suffer losses from your trades.

Better Security

Cryptocurrency exchanges are often the target of hackers and cyber thieves. The goal is to hack those platforms and drain as much of the available funds in their hot wallets as possible. CFDs however, aren’t nearly as big a target as crypto exchanges. This makes them a little safer than crypto platforms.

And in the event of a hack, all CFDs are mandate to have depositors insurance in place to help ensure that depositors don’t lose their funds in the event of a hack.

They Are Licensed Operations

One of the flaws of crypto exchanges is they’re often based offshore and may not have operational licenses in your country of residence. This is all good until the platform goes down and you need to sue them.

CFD brokerages on the other hand, have to be licensed by local and traditional financial institutions in their countries of operation. As a result, they have to scale through regulators’ scrutiny to open up shop.

Their license from a regulator means they have been vetted and ascertained to be a legitimate, lawful operation with the required liquidity and infrastructure necessary for operation. It also means traders and users would be adequately compensated in the event of a bankruptcy or shutdown.

Cons Of Crypto CFDs

While there are a lot of pros for crypto CFDs, there are also a lot of cons. These include the following:

Cryptos Aren’t Really Yours

Yep, you read that right. You see, crypto CFDs aren’t actual cryptos. They are contracts put in place to back up your payments. This puts your assets in a highly risky position, seeing as once they are added on the platforms, they aren’t really within your control anymore.

It’s like you’re handing over your tokens to brokers and asking them to hold them in good faith, while you trade with the credit they provide.

The only way to avoid this is to get your tokens out of the platform –or not use them in the first place- and take them elsewhere for safekeeping. Even more, crypto CFDs can’t be used for payment of goods and services as they aren’t really cryptos when they’re in that form.

Attracts A Lot Of Fees

While these fees may not be astronomical, some people have a problem with lots of fees. If you’re one of those people, you’ll have to weigh the benefits of CFDs against the fees. The reality is you’re charged a fee for just about anything.

You have to pay a fee to cash out, deposit, retain your position, and so much more. Even more, crypto CFDs are only good for short term trades.

Unlike crypto exchange platforms that provide you with the opportunity to buy tokens at a certain price, and HODL for as long you want, without any extra charges crypto CFDs don’t provide you with those options.

If you want to buy and hold, you better be ready to pay a lot of overnight fees. And even then, their expiry dates means that you can’t hold your position indefinitely.

All crypto CFDs expire on those dates regardless of whether your position is profitable or not. Bottom line, it’s not a great option for people looking to hold cryptos for medium to long term.

Limits To Crypto Tokens

Its availability is currently limited to a few select tokens, unlike crypto platforms that make available to you, hundreds of tokens all at once.

Brokerages can’t afford to take on more than a few, as it would cost them a small fortune. This is why you’ll find only three tokens available in crypto CFDs: bitcoin, ether and Litecoin (if you’re lucky).

Final Thoughts On Crypto CFDs

At the end of the day, it’s about the risk/reward and tradeoffs you’re willing to make. Some folks are doing well with crypto CFDs. Others aren’t. You need to determine if it’s the right investment vehicle for you.

As a rule, if you’re looking to buy and hold for a while, crypto CFDs may not be best for you –just stick with crypto exchanges. But, if you’re into very short term, fast trading options with a lot of profit potential, this is great.

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