Bitcoin CFD Explained

CFD trading in relation to Bitcoin – and crypto in general – is a brand new way of trading cryptocurrencies. The concept of CFD has actually been around for a while in the traditional financial markets. Nowadays, it is not uncommon to apply it to the realm of cryptocurrencies. With this integration, you get crypto CFDs. It is a simple method of trading, speculating, and ultimately benefiting cryptocurrencies. What’s more, it is all possible without the unnecessary hassle of preserving them in your wallets along with private keys.

This article will dive deeper into what Bitcoin CFD means and what trading it entails.

Going back to the beginning

To properly explain Bitcoin CFD, we first need to travel back to the origins of cryptocurrencies.

The beginning of cryptocurrencies took place way back in 2009. The genesis would commence with the launch of Bitcoin, the quintessential cryptocurrency. Initially, the proposition of Bitcoin was to act as an electronic payment system drawing from cryptographic proof. The cryptographic proof would come from the budding technology that would become ‘blockchain’. This piece of technology is basically a list of digital signatures providing computational evidence. This vital information describes the overall transaction history of each and every bitcoin.

This public chain focusing on ownership is what enables peer-to-peer transactions. These transactions can go through without needing to involve a third-party to process the payment. This absence of a third party acting as supervisor basically means that Bitcoin is decentralized. In 2009, an array of market observers would often dismiss virtual currency as nothing more than a fad. Moreover, they see it as a fleeting – not to mention hasty – reaction to the subprime mortgage crisis of the late 2000’s.

However, despite this dismissal, Bitcoin would only continue to grow in value and credibility over the years. What’s more, interest in this innovative form of currency, as well as the technology framework underpinning it, would blossom. With more investors embracing Bitcoin, its value continues to be on the rise. This in turn would accelerate greater interest in this particular class of assets. The end result is an incredible increase in both value and volatility.

What is CFD?

‘CFD’ is an acronym for ‘contract for difference’. It is one of the most popular forms of derivative trading. This particular type of trading allows you to hypothesize the increasing or decreasing prices of fast-moving global financial markets or instruments. These typically include shares, commodities, indices, currencies, and treasuries.

A CFD provides European traders and investors with the chance to profit from price movement. Furthermore, they can do so without actually being the owner of the underlying asset.

It is a contract between two distinct parties: the “buyer” and the “seller.” It stipulates that the seller will pay the difference between an asset’s current value and its value at contract time to the buyer. Should the difference end up being negative, then the buyer will instead pay to the seller.

It is pretty basic security whose calculation stems from the movement of the asset between trade entry and exit. Moreover, computing only the change in price without taking the asset’s underlying value into consideration. This is by way of a contract between client and broker. On top of that, it doesn’t utilize any stock, forex, commodity, or futures exchange.

Overall, trading CFDs offers those who engage in it an array of advantages. Ones that effectively boost the instruments’ enormous popularity. If you look at its progress during the past decade, you will see that it has been very successful.

Rise to prominence

The very existence of cryptocurrencies is largely thanks to the technological revolution of the blockchain. As you may recall, this is a public ledger that keeps a record of all transactions. Alternatively, they keep track of similar consensus ledger systems. Since the beginning, the potential of this new asset type and the technology poses a danger to interest in specialist quarters. At least, that seems to be the general belief.

Recently, we are seeing that cryptocurrencies are attracting attention from a considerably wider audience. This mostly because Bitcoin is garnering acceptance as a means of payment in more places than before. Cryptocurrencies as an asset class are being viewed by an increasing number of people as an alternative investment. This is primarily due to headlines that frequently bring up the gigantic leaps in Bitcoin’s overall value. The price of Bitcoin back in 2017 was roughly $1,000. By December of that same year, it would surge higher and exceed $19,000.

Crypto would later gain additional credibility with the launch of Bitcoin future contracts. Specifically, launches from popular and well-established exchanges like the CBOE and CME. This would provide people with the help they need to start trading crypto in the financial markets.

Sidestepping drawbacks

There are a few downsides to buying the actual digital currency that comes from not fully understanding it. One of the main shortcomings is that processing times for purchasing a cryptocurrency are usually slow. Much slower than the instantaneous fills that epitomize the average Forex (FX) trade. Oftentimes, cryptocurrency exchanges are not regulated, which leads to many wondering if crypto trading is even legal. On top of that, there are stories about exchanges being subject to hacks and digital coins being stolen.

You can easily avoid all of these common concerns by trading crypto with CFDs. Doing so will provide you with fast execution times, which is quite useful for a volatile market.

How you do it

If cryptocurrency were a family, then Bitcoin would be the eldest child. Due to its launch occurring in 2009, it is obviously much older than its closest crypto rival. Specifically, when it comes to capitalization. It is by far the most mature of the cryptocurrencies, so it unsurprisingly tends to generate the most headlines. Over the years, those headlines would prove to be plentiful thanks to Bitcoin’s outstanding boost in value.

There is a good way to profit from a value increase. To do this, you need to purchase Bitcoin and put it in your wallet as a means of storing it. The intent here is to sell it at a comparatively higher price later on down the line. An easier way to contemplate the value of Bitcoin is by trading BTC/USD through the use of CFDs. The only requirement at this point is to open a live trading account. Once that is good to go, you can trade BTC/USD from a chart via a trading platform. Some examples of these platforms include MetaTrader 4 (MT4) and MetaTrader 5 (MT5).

It is important that you keep in mind just how volatile Bitcoin is capable of being. Early 2018 valuations pulled back extensively from the highs at the end of 2017. Accompanying this correction was an array of wild swings concerning the price. Admittedly, there are many traders who will see this volatility as more of an opportunity than a risk. However, it would be wise to trade cautiously during such times. In the end, the choice is up to you.


Probably one of the biggest upsides to trading CFDs is the amount of leverage it offers. It is what allows you to hold larger positions than you likely would have if bought the cryptocurrency itself. This essentially means that there is also a lot of potential for higher profits. Be that as it may, the risk stems from the losses being higher should your predictions never play out. Therefore, similar to other forms of speculative trading, success only comes from accurately forecasting price trends.

Another notable advantage is the instantaneous speed of the system. When you trade Bitcoin CFDs, there is no need to wait around for an order’s completion. Similarly, there is no need to wait for the transfer of the currency to your account. All you are really doing is trading a contract, and its execution can be immediate.

With CFDs, you are actually able to trade Bitcoin using traditional fiat currency. Therefore, there is no requirement for you to buy Bitcoins first in order to start trading. As a matter of fact, you don’t need to own any cryptocurrency at all. However, let’s assume that your broker only accepts payment in cryptocurrency. In this case, you will of course need to own Bitcoins so that you can pay them.

Furthermore, Bitcoin is a traceable asset on a wide variety of trading platforms and against numerous currencies. Traders have the choice between one of two options. On the one hand, they can take the delivery of their order. On the other hand, they can go with a CFD pertaining to payment or receipt of the difference in price. Specifically, on the start and end dates of the contract.

Some of the best

Below are three of the best Bitcoin CFD brokers that are available for you to use. Each one is unique in how it operates and the choice is yours as to which one is best for you.

#1 – Plus500

Plus500 is a leading forex, commodities, stocks, indexes, and cryptocurrency CFDs provider. This company has an outstanding position in Europe with the largest number of CFD traders. Its system of operation is primarily in Israel. Since 2009, they have been serving the CFD needs of customers all around the world. Not only that but it has the approval of the FCA and is listed on the London Stock Exchange.

Professional traders can put their trust in this platform to allow them to trade CFDs of any kind. This is especially true when it comes to cryptos. Moreover, they can expect to receive adequate liquidity. On top of that, you are able to fund your Plus500 account with either a credit card or an account on Skrill. In doing so, it will not drop to zero due to negative balance protection.

#2 – SimpleFX

SimpleFX is among the most trustworthy CFD providers. It allows its users from across the globe to trade Forex CFDs on Bitcoins and Litecoins. Likewise, it can trade these CFDs on precious metals, energy, and indices. SimpleFX WebTrader effectively makes CFD trading a simple and intuitive process. It has a strong presence in over 150 countries and has over 200,000 traders onboard. Those who use this provider can benefit from 1:500 leverage, as well as fast deposits.

When you use SimpleFX, you have the ability to choose any application that’s suitable for your device. In doing so, you can enjoy the easiest and powerful trading platforms. In addition, you can use the mobile device as a way to use SimpleFX with its native iOS and/or Android apps.

#3 – eToro

eToro is by far one of the biggest players within the cryptocurrency market today. It is a company operating in Israel that has been prevailing in the industry for more than a decade. They are quite knowledgeable about all the details of this game, boasting over 5 million customers using their service. You are able to trade with cash, which you can quickly deposit using various means. Whether it is your credit card, PayPal, ACH, or wire transfers, depositing is easy to conduct.

It’s important to note that it does not serve U.S. customers due to regulatory barriers. However, if you are from any other country who wants to start CFD trading, eToro is readily available.