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Understanding Successful Bitcoin CFD Trading

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

Table of contents

Trading in derivative financial products such as CFDs (English abbreviation for contract for difference) involves certain risks. There is a possibility of realizing both high profits and high losses. Therefore, you should not act haphazardly when trading CFDs on the Bitcoin price.

Besides the essential knowledge of factors influencing the price, you should consider a trading strategy that fits your individual preferences. Moreover, you should know what advantages and disadvantages direct trading with bitcoin entails and when trading with a CFD on it makes more sense. In the following article, we will shed some light on all of this.


Know factors influencing the Bitcoin price

In CFD trading, you speculate long or short on the price trend of bitcoin. This is known to be highly volatile and reacts to external factors with strong upward and downward fluctuations. A look at the past shows that above all the following three factors are decisive:



The number one influencing factor is bitcoin halving. The verification of transactions works in the Bitcoin network via so-called mining, also known as prospecting. Every 210,000 blocks, the reward due to the miners is halved. This halving happens approximately every four years. This means that fewer and fewer new Bitcoins are generated over time. This type of limitation gives Bitcoin a deflationary character, which in turn drives up the price and ensures price increases.


Political regulation

In May 2021, the Chinese government took massive action against mining farms based there. Since the majority of miners operated out of China, the effects were clearly felt: computing power shrank by about half. As a result, the Bitcoin price plummeted significantly. Potentially, other countries could also restrict the activities of domestic miners, for example for environmental reasons. Other possibilities for political regulation exist, for example, with regard to stricter tax treatment of Bitcoin and Co. This has been discussed for some time in the USA.


News & Third Party Statements

The third factor influencing the share price is all other types of news and public statements made by famous outsiders. Tesla CEO Elon Musk should be mentioned here in particular. His often contradictory statements on Twitter have already caused strong price fluctuations in both directions.

At first, the announcement that Tesla would accept Bitcoin as a means of payment caused a wave of euphoria. Only a few months later, Tesla withdrew its intention and the Bitcoin price plummeted. If other large companies such as Amazon or Apple were to accept cryptocurrencies, this could boost the price again. However, negative statements by celebrities are also within the realm of possibility in the future.


Create trading strategy

Now that you know the general factors influencing the price, you should next question your own motivation when investing. What is your investment horizon? Do you want to profit from short-term price fluctuations, possibly even on a per-hour basis? Do you want to take advantage of longer-term highs and lows? Or do you want to be invested in Bitcoin for the long term?


Day trading

In day trading, the shortest term of all strategies, you buy and sell financial instruments such as stocks, CFDs or similar within one trading day. Important for this: Extensive knowledge in chart-technical analysis. On their basis you must analyze the current price trend comprehensively and decide for a long or a short position. For day trading, a CFD is suitable in the first place.


Swing Trading

Price fluctuations on a longer time basis (several days to months) are exploited in swing trading. The goal is to use bottoms in the bitcoin price trend to buy and to sell the cryptos at the peak.

Knowledge of the various chart-technical indicators is also mandatory for this. Swing trading can be done either in direct trading (i.e. by acquiring physical Bitcoins) or with a CFD on the Bitcoin price. With the latter option, however, you should definitely keep in mind that fees will be incurred if you hold a CFD for a longer period of time. More on this later.


Long-term strategy or HODL

The term HODL, which is very popular among crypto bulls, describes investing in Bitcoin and Altcoins according to the buy-and-hold principle. Cryptocurrencies are bought and held in the portfolio in the belief of a very rosy future in the long term, even during highly volatile phases. Bitcoins are not sold during weaker phases. Rather, periods of weakness serve as an opportunity to buy more. For the long-term strategy, only a direct investment in cryptos comes into question. CFD trading would not make sense here due to ongoing costs.


Buy Bitcoin in direct trade

As described in the previous paragraph, direct trading is suitable for the long-term strategy. You buy Bitcoins at an exchange of your choice, preferably of course at a renowned and reputable one, and then take care of a safekeeping. A hard wallet separate from the Internet is recommended for this purpose. Their costs amount to a high two- to low three-digit amount. With direct trading, you have the advantage that you can use your Bitcoins to generate passive income on the side, e.g. via so-called lending.

However, tax aspects must be taken into account. Capital gains from cryptocurrencies are currently only tax-free after a holding period of at least one year. If sold before, your gains are taxable at your personal income tax rate. Lending and other passive income, such as staking of altcoins, arguably extend the aforementioned holding period. A decision by the Ministry of Finance is still pending on this.


Trade Bitcoin as CFDs

CFD trading is to be favored if you want to do short-term day trading or swing trading. This comes with some advantages over investing directly in Bitcoin. With a CFD, you do not have to worry about keeping your coins. This is because while you speculate on rising prices when buying directly, CFDs can also be entered into on falling prices. So you can go both long and short.

In addition to this, you can work with leverage if you have an affinity for risk. Within the EU, the maximum leverage for crypto CFDs is 1:2, which means that the amount of money invested, also called margin, is multiplied by a factor of two. Important: Keep an eye on the incidental costs incurred when trading.

This is because, as outlined earlier, a CFD will incur fees if you hold it for more than one day. This fee is called overnight financing. It is charged if a trade started during the day has not yet been closed overnight. Overnight financing is charged because the broker lends you money in the amount of the leverage in a leveraged position. Overnight funding can also be positive and credited to your CFD account. This is the case with some short CFDs.