Hi Professor @kouba01, I am @ononiwujoel one of your students and this article is my homework submission.
<h2> Introduction</h2>
As we all know, cryptocurrencies are digital coins that are intended as an alternative to real world currencies and the recent increase in popularity of crypto has surged the awareness about these digital coins not just among major investors but also among the general public. In the cryptocurrency market today there are several crypto trading platforms offering Contracts for Difference (CFDs) for almost all popular cryptocurrencies so its important we have knowledge of what CDFs is about as people interested in crypto trading.
<h2> What is Cryptocurrency Contract for Difference (CFDs)? </h2>
To grasp a better understanding of what the cryptocurrency CFDs is all about we have to first understand the term **_"Contract for Difference"_** in it general sense.
**WHAT IS CONTRACT FOR DIFFERENCE (CFD):**
Contract for Difference is an arrangement or agreement based on an underlying asset (asset can be a fiat currency, shares, index or commodity) that pays the differences in the settlement price between the open and closing trades.
In CFD trading, the asset is not usually owned by the investor instead the investor only predict whether the asset will increase or decrease to the target direction. The investor will be paid multiples of the number of units bought or sold for every point the price moves in the set direction and the investor also loses multiples of the number of units bought or sold if the price moves opposite the set direction.
*illustration of CFD trading using Litecoin*
In Contract for Difference we have two options of trade, the **Long-term Position(purchase)** and the **Short-term Position(sell)**. If you are expecting the price of the asset to increase in the future then you should use the Long-term Position but if you are expecting the asset to decrease then you should use the Short-term Position. In either positions, you need to be skilled at forecasting to be able to make maximum returns in trade.
Having explained what CFDs is all about, we can now easily discuss Cryptocurrency CFDs.
Now in Cryptocurrency Contract for Difference we can predict or forecast a future change in the price of cryptocurrencies. Majority of CFDs allows us to do this prediction of crypto in relation to the price of fiat currencies like the US dollars, Euro and others but in addition to this, some brokers service providers also offers crypto to crypto pairs like BTC/LTC which means we can also trade Bitcoin verse Litecoin and same with many other cryptocurrencies.
The procedure for trading Cryptocurrency CFDs can be explained in four phases;
* Firstly, the investor chooses an asset among those offered by the CFD Provider to investors like Litecoin, Bitcoin and others.
* Secondly, the investor opens a position for the contract and chooses if it will be long-term or short-term. The investor also chooses the amount of leverage (leverage is a tool that allows you to buy or sell CFDs at more capital than you actually have).
* Thirdly, the seller and investor agree on the opening price, fees and other conditions depending on the broker.
* Fourthly, the position is now open and remains so until it is closed by the investor or closed automatically based on predetermined terms and conditions during opening of account. Having done this, the contract is finalized and the profit or loss ratio is determined when the contract is closed.
<h2> How do I know if Cryptocurrency CFDs are suitable for my trading strategy? </h2>
Cryptocurrency CFDs are very volatile and so in as much as gains can be awesome the loses also can be devastating. So it's a risky venture and not for every trader.
Some points to know if Cryptocurrency CFDs can fit your trading strategy includes;
* If you are aiming at high and low of cryptocurrency rates (both long and short positions)
* If you desire to make profit from trading on margin and have a relatively low initial capital
* If you enjoy taking risks and trading in stressful trading environments
* If you want to benefit from a secure trading environment through a CFD broker that grants it's investors certain protection.
* Lastly, if your trading strategy is short-term
<h2> Do all brokers offer Cryptocurrency CFDs? </h2>
Not all brokers offer Cryptocurrency CFDs. I will recommend few that are notable;
* **eToro:** This is one of the top rated cryptocurrency brokers and it benefits from a large community of experienced investors. It offers crypto like bitcoin, etherum, ripple, dash, litecoin etc.
* **XTB:** This is also top rated cryptocurrency broker and is well-known for good customer service. It offers bitcoin, litecoin and etherum amongst others.
* **IC Markets:** This is also notable crypto broker and offers bitcoin, neo, ripple, litecoin and others.
<h2> How to trade with Cryptocurrency CFDs using eToro</h2>
I will brief show how to trade Cryptocurrency CFDs using a free etoro demo account.
Visit eToro site at https://www.etoro.com and click the **_Join Now_** button.
Enter your username, email address and password in the **Sign up** page.
You will be moved to the Main page and then you complete your profile by filling in all the information and you can now switch between your real portfolio and virtual portfolio.
Now I switched to my virtual portfolio
I click on Trademarked and select bitcoin as my cryptocurrency to open trade then I purchase 0.4units of bitcoin worth $20050
And now I can begin trading.
<h2> Conclusion </h2>
Cryptocurrency CFDs is a great system of trade provided the trader or investor has proper knowledge of it and how it works and is also Skillful when it comes to forecasting since it based on predictions. Also it is one of the most risky trading strategy so far in the crypto market and as such it is for people ready to take the risk and short term trading strategists.
It was a great lecture and I learnt a lot especially about CFDs brokers and how they operate.
Thanks for viewing and I hope I met your expectations.