Why CFD Trading Might Be Better Than Buying Cryptos Directly

Having grown in popularity over the last few years, the cryptocurrency industry is now worth trillions of dollars.

Some of the most popular cryptocurrencies to trade are Bitcoin, Ethereum, and Tether. Unlike traditional currency, crypto is decentralized and exists outside of the control of government and central authorities.

There are two ways you can trade cryptocurrency: by buying and owning the currency or via a CFD. Also known as contract for differences, a CFD can offer more benefits than buying and holding digital coins directly through an exchange or wallet.

In this guide, you will learn about the advantages of trading cryptocurrency via CFDs and the importance of using a secure, regulated environment such as the one provided by Plus500.

80% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money. *CFD trading via Plus500’s demo account.

What Is Crypto CFD Trading?

When you buy cryptocurrency, you own the coins and store them in a crypto wallet until you decide to sell. If the value increases, you can sell for a profit.

However, this relies on you holding onto the crypto until the right time to sell. The crypto market is highly volatile, and prices can fluctuate wildly over a short period. Some of the factors that contribute to cryptocurrency price volatility are economic influences, market demand, and regulatory changes.

The rigidity of direct crypto trading can make it difficult to know when to trade and may lead to you spending more time than you would like observing the market for optimal selling conditions.

A more flexible way of trading cryptocurrency is with contracts for difference, or CFDs. They allow you to capitalize on crypto trading without owning the actual assets. With CFDs, you can predict the future price trajectory of a particular cryptocurrency with little initial cost to you, as you will not need to own the crypto.

Trading CFDs is simple and done in the same way as trading crypto assets. If you want to buy the equivalent of 100 Bitcoin, you will buy 100 Bitcoin CFDs. CFDs allow you to control larger positions with borrowed capital through margin trading, options, or futures.

Plus500 offers a wide range of crypto CFDs, such as Bitcoin, Ethereum, and Solana.

The platform enables 24/7 trading and allows you to set stop-loss and take-profit orders to manage risk. By trading CFDs, you can go long or short, profiting from either rising or falling crypto prices, unlike traditional spot trading, where you buy the asset at its listed price.

80% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money. *CFD trading via Plus500’s demo account.

Buying Crypto Directly – Key Limitations

Buying crypto directly comes with some key limitations that can hinder your experience.

To buy cryptocurrency, you need to choose a broker and select the crypto you want to purchase. As you are buying the actual asset, you will need to select a secure storage method, such as a wallet or a vault.

A crypto wallet can come in different forms, from a mobile app to physical hardware that looks like a USB flash drive. The wallet holds the private keys needed to access the currency on the blockchain.

While crypto wallets have security, they do carry risks. They are susceptible to theft by hackers and can be corrupted by software bugs. What’s more, mobile phones and physical hardware can be easy to misplace, and if they go missing, they could be accessed by someone else.

The popularity of cryptocurrency has unfortunately brought with it a rise in crypto hacks. In 2024, hacks resulted in a total theft of $2.2bn across various cryptocurrency platforms. Attacks on crypto can be carried out through phishing, malware, or data breaches.

Another limitation of trading with cryptocurrency coins is that it can come with a slow withdrawal process. This is not an issue with CFDs, as you are not buying the asset.

80% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money. *CFD trading via Plus500’s demo account.

Why CFD Trading Might Be Better

While all trading carries risk, trading crypto via CFDs comes with some practical advantages, especially if you use Plus500.

Flexibility to Go Long or Short

After you choose a cryptocurrency to trade, such as Bitcoin, Ethereum, or Tether, you can decide whether to go long or go short.

Going ‘long’ means predicting that the price of your crypto CFD will increase. By going long, you are buying the crypto with the expectation that you will be able to sell it later at a higher price.

Alternatively, you can go short. This refers to predicting that the crypto price will decrease. By going short, you ‘sell’ the CFD first with the plan to ‘buy’ it back later at a lower price.

As the market is volatile, prices can fluctuate wildly. Trading via CFDs allows you to trade on both rising and falling markets rather than waiting for price increases. This helps to mitigate volatility because you can predict increases or decreases to make a profit on your trade.

Going long or short is made simple, thanks to Plus500’s uncomplicated trading interface.

No Need for a Crypto Wallet

One of the main advantages of trading via crypto CFDs is that you do not need a crypto wallet to store cryptocurrency.

This reduces the risks and complexities of owning a digital wallet, such as security breaches, loss of access, and even human error, such as sending funds to the wrong wallet address.

Regulated Trading Environment

You must use a regulated trading environment to buy and sell cryptocurrencies. Plus500 is FCA-regulated in the UK, and your funds are held on a segregated basis, so your money is protected.

The platform is committed to continuous improvement and strives to expand its product offering. It also boasts higher security and transparency compared to many crypto exchanges.

Leverage Options

With Plus500, you can trade cryptocurrencies via CFDs with up to 1:2 leverage.

This multiplies potential profits or losses, so whether you go long or short, you can be increasing your capital. It is important to note that leverage amplifies losses, so if you have predicted a price increase, your CFD will go down in value.

Plus500 also displays clear margin requirements, so you are aware of how much you need to have in your account to open a position.

Fast Execution and Built-In Risk Tools

Plus500 is easy to use for traders of any level. With its user-friendly interface, you can quickly execute trades to get the best price.

There are also built-in risk tools to help protect your profit. Two of these tools are stop-loss and take-profit orders.

A stop-loss is an exit order that automatically closes a position when the market reaches a certain level. A take-profit order will automatically close a position when the price reaches a level that locks in a profit.

With Plus500, you can set a stop-loss or take-profit order either before or after you have opened a position.

Unlike with crypto exchanges, there are no delays in deposits or withdrawals when trading with Plus500.

To help you trade on the go, Plus500 offers a mobile app as well as its desktop platform. You can trade 24/7 with just one hour of downtime on Sundays.

Potential Risks and What to Watch Out For

Trading with CFDs can carry a reduced risk compared to buying cryptocurrency directly, but there are still risks you need to be aware of.

Leverage can amplify your gains, but it can also magnify losses. When using leverage, be aware that if the crypto price falls, the money you lose will be multiplied.

Not owning crypto comes with the benefit of not having to store it, but this can be a disadvantage for long-term holders. When trading via CFDs, you are trusting a broker with your funds, which means you are not in control. In addition, trading with leverage long-term can amplify losses.

You may be charged an overnight funding fee if your position is left open after a certain cut-off time. This can chip away at your account balance if your positions are frequently left open.

As with all trading, you run the risk of market volatility and slippage. You can mitigate these risks by conducting research and using the helpful Plus500 tools.

Frequently Asked Questions

Final Thoughts

If you are interested in trading cryptocurrencies, you can do so either by buying crypto directly or via CFDs. Using CFDs can be a more flexible and secure way to engage with crypto markets.

Trading with CFDs is made even easier and more secure through Plus500, which offers regulated access, risk tools, and an easy-to-use platform.

WikiJob does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.

80% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money. *CFD trading via Plus500’s demo account.