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Disadvantages of CFD trading with cryptocurrencies

  • Post category:Bitcoin
  • Reading time:6 mins read

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All disadvantages of CFD trading with cryptocurrencies at a glance

CFD trading with cryptocurrencies is also booming these days and attracting more and more private investors. Many online brokers now also offer CFD trading with all known crypto coins such as Bitcoin, Ethereum, Litecoin and other Altcoins. The principle behind this is similar to classic CFD trading: As a potential trader, you do not acquire ownership of the actual coin, but speculate solely on its price development.

The cryptocurrencies themselves are digital currencies that can be bought at special crypto trading platforms. A CFD on a cryptocurrency, on the other hand, can be bought by potential investors at a so-called crypto CFD broker. CFD trading with bitcoin CFDs or other crypto CFDs offers a number of advantages in itself compared to normal bitcoin trading. However, there are also disadvantages that cannot be neglected and the risk of a total loss exists.

Within the following sections, all relevant information about Bitcoin CFDs, CFD trading and one or the other disadvantage of this asset class shall be shown to the reader.


Disadvantage 1: A CFD on cryptocurrencies has a much higher volatility

In itself, volatile markets are not a bad thing in CFD trading. However, the volatility of cryptocurrencies also significantly increases the individual risk of the trader. Unlike long-term investing, CFD trading only speculates on short-term price changes. If these are too strong, this carries the potential risk of suffering a high loss.

Crypto CFDs such as Bitcoin CFDs have a much higher volatility compared to other asset classes such as stocks, ETFs, equity CFDs, ETF CFDs as well as Forex or commodities. Price fluctuations of between 10 and 40 percent on just a single trading day are not uncommon! Since CFDs on cryptocurrencies can be traded in the EU with a leverage of up to 1:2, a negative price movement of 50% would mean a total loss.

CFD trading with cryptocurrencies therefore requires above all strong nerves and high capital in order to be able to compensate for ongoing losses in trading well. Furthermore, strict risk management must be adhered to in this extremely risky asset class. Here, only a certain proportion of the individually available equity should be risked per trade. And even then, it sometimes takes a lot of effort to adequately take advantage of the sometimes extremely strong price fluctuations.


Disadvantage 2: CFD trading with leverage sometimes drastically amplifies potential losses

As usual in CFD trading, crypto CFD trading can also be based on the use of leverage. This is short-term borrowed capital, which the potential trader borrows from the broker for the trade. For this purpose, the trader deposits a so-called margin.

According to EU regulation, leverage of maximum 1:2 is allowed for CFDs on cryptocurrencies. This means that you only need half of your own capital to trade with it. For example, if you use 500€ of your capital for a Bitcoin CFD, you actually move 1000€ with a leverage of 1:2. Accordingly, the price movements double in both directions.

On the other hand, the individual risk increases significantly! CFD trading with leverage is therefore only recommended to experienced CFD traders and should never be overstimulated! High volatility and high leverage in combination sometimes entail high risks, up to the total loss of one's own capital in the CFD account.


Disadvantage 3: CFD trading incurs high costs in the form of spreads or overnight funding fees.

CFD trading involves short-term speculation, where the corresponding trades are often held for only a few minutes or a maximum of hours. However, if the positions are held overnight, for example, the trader incurs fees in the form of overnight financing.

The fee for overnight funding is charged by the brokers, but can also be credited to the CFD account. So-called positive overnight funding exists, for example, sporadically for short CFDs on Bitcoin. However, this is not frequent and mostly it is negative for the CFD account. The longer a CFD is held, the more costs are incurred due to overnight funding.

Overnight financing can therefore be very disadvantageous for the potential trader, or drastically reduce his profit margin. Open CFD positions after the overnight funding period should therefore be avoided at all costs!

CFD trading in itself also causes other costs that are incurred independently of overnight financing. These are to be shown in the following once clearly:

  • Transaction costs or "spreads" (corresponds to a small markdown that the respective broker charges for each trader - this is on average between 1 and 5 pips per trade).
  • Overnight financing (as already explained)
  • Commissions when buying and selling CFDs (however, most CFD brokers do not charge commissions, due to strong competition among themselves).
  • Custody fees in case of absence (some CFD_Brokers charge an account fee if you have not used the account for more than 1 year).


Disadvantage 4: When trading crypto CFDs, the trader does not own real coins

Since CFD trading only speculates on the price trend of the underlying asset, the trader does not acquire ownership of the actual cryptocurrency. Thus, he cannot use his Bitcoins in Bitcoin CFDs to buy products or services. Also, he cannot transfer his coins to another crypto wallet or crypto trading platform.

Trading crypto CFDs in itself is more focused on short-term speculation than long-term investment. With leverage, you can take more advantage of the sharp price fluctuations.

Therefore, if you believe in cryptocurrencies in the long term and want to invest in them, you should buy Bitcoin and other altcoins on crypto exchanges. However, trading with Bitcoin CFDs can be an interesting addition in the field of trading with cryptocurrencies.

Conclusion on the subject of disadvantages in crypto CFDs

Overall, CFD trading with cryptocurrencies is a highly speculative matter that should only be left to experienced traders. Even more than with other CFD variants, the areas of trading psychology, risk management and the right trading strategy play an important role here.

Cryptocurrencies are also subject to very large price fluctuations in daily trading, which is why trading with leverage should be well considered here. The sometimes high costs and fees of the individual crypto CFDs also prove to be disadvantageous.

If you still want to deal with the matter of CFD trading, you will find Bitcoin CFDs a number of speculation opportunities. Crypto CFDs can be an interesting asset class and complement CFD trading with other CFDs, such as stock CFDs or commodity CFDs, well!