Bitcoin and other cryptocurrencies are becoming more and more popular. The possibilities to trade Bitcoin are also increasing. Two interesting ways to trade Bitcoin are Bitcoin CFDs and the real Bitcoins. But what are the differences and which product is suitable for whom, that we answer in this article.
What are Bitcoin CFDs?
Bitcoin CFDs are contracts for difference whose underlying asset is bitcoin. This means that the price of the Bitcoin CFD correlates with the price of Bitcoin. CFDs are available for various assets, such as stocks, ETFs, commodities, indices, currencies and even cryptocurrencies.
CFDs belong to derivatives and are often traded with leverage. In the European Union, the leverage for CFDs on cryptocurrencies is capped at 2:1 by default. However, keep in mind that trading with leverage is very risky. For CFDs, there are special brokers that specialize in these financial products. An extensive CFD Broker Overview you will find with us.
For those who don't want to buy real cryptocurrencies or are afraid that their Bitcoin wallet will be hacked, Bitcoin CFDs could be an alternative. However, you need to be clear about what exactly the differences are and what advantages and disadvantages CFDs and real bitcoins have.
Differences of Bitcoin CFDs and real Bitcoins
Before trading Bitcoin CFDs or Bitcoin, you need to understand the two financial products. Although the name is very similar, they are fundamentally different at their core. One of the most important differences is that Bitcoin CFDs are derivatives and are based only on the price of the underlying asset. Thus, you do not own any real Bitcoins!
So if you only want to speculate on the Bitcoin price in the short term, Bitcoin CFDs can be interesting for you. Also from the point of view that you can trade Bitcoin CFDs with leverage and also speculate on falling prices. Likewise, because of the higher fees, Bitcoin CFDs are not suitable for long-term investing.
On the other hand, those who want to invest in Bitcoin for the long term are better off with the real Bitcoins. This is not least due to the relatively high fees for CFDs, especially if they are held for a longer period of time. All other differences can be found in the following table Bitcoin CFDs vs. real Bitcoins:
|Bitcoin CFDs||real bitcoins|
|Background||Derivative (CFD)||Coin based on the blockchain|
|- Long-term investment
- Means of payment
- Overnight fee
|Trading place||CFD broker||Crypto Exchange|
Advantages of Bitcoin CFDs
In order to decide whether Bitcoin CFDs is the right thing to do, you should know all the advantages. Therefore, we have listed here all the advantages of Bitcoin CFDs over real Bitcoins:
- No wallet needed
- No danger from hackers and stolen bitcoins
- Trade bitcoin with leverage
- Also speculate on falling prices
- Trade Bitcoin CFDs in demo account
- Quick registration
- Wide range of other CFDs on cryptocurrencies
A major advantage is that you don't need a wallet with Bitcoin CFDs. Since you don't own any real bitcoins, you don't have to store them in special wallets. It is true that a lot has happened in this area and the range of wallets has become larger and larger. But for some, the issue of cryptocurrencies and keeping them in wallets is still complicated. Therefore, bitcoin CFDs could be an alternative.
Again and again we hear about hacker attacks on crypto exchanges in which millions of Bitcoins are captured. This danger always exists if you keep the Bitcoins in the crypto exchange's wallet. Of course, this cannot happen with CFDs. This risk is therefore eliminated.
One advantage of Bitcoin CFDs is the possibility to trade them with leverage. This means that you trade with more money than you actually deposited in the CFD account. Accordingly, the profits can be higher. However, it is important to note that with leverage, the risk also increases at the same time. In the worst case, there is even the risk of total loss. Therefore, when trading with leverage, you should always know what you are doing and have the appropriate experience.
Another big difference with real Bitcoins is that with Bitcoin CFDs you can also speculate on falling prices. This brings more flexibility to trade any market situation and be able to react if the markets fall.
If you don't have much experience yet, you can practice trading Bitcoin CFDs with free demo accounts. Most CFD brokers offer free demo accounts where you can trade CFDs without putting real money. This gives one a chance to get familiar with CFDs, leverage and the platform. For someone who has never traded CFDs before, a demo account is a good place to start.
Bitcoin CFDs Disadvantages
Besides the advantages, it is also important to know the disadvantages of Bitcoin CFDs. Only if you know all the arguments regarding Bitcoin CFDs, you can decide for yourself whether you rather trade with real Bitcoins or use Bitcoin CFDs after all. Therefore, we have listed all the important disadvantages of Bitcoin CFDs here:
- No real bitcoins
- Leverage can lead to total loss
- Higher fees due to spreads and overnight fees
An obvious and at the same time important disadvantage of Bitcoin CFDs is that you do not trade real Bitcoins. You only speculate on price changes with CFDs and are not part of the blockchain. Accordingly, you cannot use Bitcoin networks and you cannot pay with them.
The mentioned leverage in CFDs can be a very big risk. You must always be aware of this. Just as it can have a positive effect, it can also have a negative effect and increase losses. This can go so far that even the total loss of the invested capital can occur if one trades wrongly.
Bitcoin CFDs are not financial products with which you invest for the long term. They are only suitable for trading and not as an investment. The reason for this is, among other things, the high fees if you hold a CFD position for a longer period of time. This is because CFDs have daily fees, called overnight fees. These fees make holding CFDs for a long period of time unattractive and thus make Bitcoin CFDs unsuitable as an investment.
Likewise, the fees when buying from the CFD broker can be higher than on crypto exchanges. The fees when buying Bitcoin CFDs as well as real Bitcoins are mostly generated by a so-called spread. That is, the difference between the buying and selling rate. These spreads are often higher for Bitcoin CFDs, but are also dependent on the respective CFD broker.
Conclusion: Should I buy real Bitcoins or trade Bitcoin CFDs?
Whether Bitcoin CFDs or real Bitcoins are right for you depends on what your goals are. If you believe in the long-term success of Bitcoin and cryptocurrencies, then real Bitcoins are the better choice. However, if you only want to profit from the price changes, then Bitcoin CFDs might be right for you. If you are familiar with trading and especially CFD trading, then you can trade Bitcoin CFDs. Of course, always be mindful of the risks that come with CFD trading. For long-term investors, Bitcoin CFDs are definitely wrong choice and prefer to reach for real Bitcoins and buy them on established crypto exchanges, such as Binance*.