Contracts for Difference

In financial asset trading, a contract for difference (CFD) is a contract between a buyer and a seller. The contract stipulates that the buyer will pay the seller the difference between the current value of an asset and the value at contract time. CFDs ensure that traders make money from trading a particular asset without actually holding the asset. This means that you can trade Bitcoin and make money from Bitcoin’s (BTC) price movement without buying or holding BTC in your wallet.

With CFD trading, you are simply required to predict the future price of an asset. If you predict, for example, that Bitcoin’s price will decline over a particular period, you can ‘short’ Bitcoin and you will make money if Bitcoin’s price does decline. However, if you are optimistic that Bitcoin’s price will increase over a specific period, you can ‘long’ the cryptocurrency, allowing you to make money once Bitcoin’s price increases. As such, you can make money without buying or holding an actual asset.

CFDs have become instrumental trading tools for traders as they allow them to make money from the financial markets without the need to buy and hold the actual asset. Another advantage of trading CFDs is that they can be traded with leverage. This means that you can use a fraction of your capital to enter a larger position in the market and potentially make higher profits than you would if you didn’t use leverage. However, it is crucial to remember that while trading with leverage can boost your profits, it can also cause greater losses so take the time to fully understand leverage before you trade.