Crypto CFDs: 3 Reasons to Trade Them

Don't Fear Crypto

I learned one major lesson in 2022: don’t fear crypto currencies - fear the centralised exchanges that trade them. Crypto exchanges were supposed to make the life of a trader like me a lot easier. People flocked to them because they provided a way to invest in crypto without the need for wallets and the complexity that went along with old school peer-to-peer transactions. They were also meant to afford both traders and investors better security, transparency, and reliability, in addition to allowing for margin trading. The collapse of FTX , one of the world’s largest exchanges, shattered those perceptions in late 2022, with some estimating that nearly one million traders and investors could lose their capital. In truth, FTX, albeit one of the largest, was just one of the many crypto firms to fail in 2022. 

Love Thy Crypto CFD

Yet for all the crypto bad news over the recent past, crypto currencies, rich in volatility and disruptive to fiat currency, still offer the promise of huge profits for traders and investors from all walks of life. As Sun Tzu, the Ancient Chinese Military Strategist once said, “In the midst of chaos, there is also opportunity”, which may prove true for crypto over the coming years. Personally, I’ve found crypto contracts for difference, commonly referred to as CFDs, the most ideal product to trade cryptos. Crypto CFDs, when offered by a globally regulated broker such as VARIANSE, avoid many of the issues plaguing crypto exchanges today, while offering an easier and in certain cases a more flexible product. Below I’ve listed the few reasons why traders should consider crypto CFDs over exchange traded cryptos in today’s prevailing market environment. 

#1 Regulation

Losing money on a trade or investment is acceptable and expected. Losing your hard earned deposit because the exchange or broker you are dealing with misappropriated funds and ultimately went bust is downright unfair. Crypto regulation, still in its infancy, affords few protections to the clients of crypto exchanges, centralised or decentralised. Bovill, a consultancy, describes crypto exchanges to date as “largely unregulated” and where regulation is existent, it fails to “mandate specific controls on assets custodied on exchanges to prevent misappropriation”. To put it more bluntly, client's funds are at greater risk with crypto exchanges than other more regulated firms. FTX is the living proof. 

On the other hand, globally regulated CFD brokers, such as VARIANSE, simply don’t suffer from the same lack of oversight that crypto exchanges do. The security of client funds is a key area of focus for the major global CFD regulators. Also, CFD brokers have a more well established regulatory history as the product has been around since the 1970s. VARIANSE, the broker I work for and trade with, also offers the added protection of segregated client accounts at Barclays Bank. Segregated means that a broker's funds are kept separate from those of clients at all times. Because I take the security of my deposited funds seriously, I rank better regulation as the number one reason to trade crypto CFDs over centralised exchanges.

#2 Transparency

One of the major attractions of crypto exchanges is they provide an easy way to trade cryptos. But CFDs are just as easy and in many respects offer more transparency than exchanges. CFDs are a natural fit for cryptos because just like any other foreign exchange rates, they are represented as a pair of base and quote currencies. So, the mechanics behind crypto exchange trading and CFDs are nearly identical; position sizing in both cases are based on units/lots in the base currency. 

What I personally like most about crypto CFDs, however, is their relative transparency. Going long and short via a crypto exchange usually involves trading crypto futures or the physical coin. Each is complex in its own right. For example, physical short sellers of coins must grapple with margin lending to establish short positions. Likewise, perpetual futures carry a premium or discount to the true spot price, based on the demand supply dynamics in the paper market. To ensure the perpetual futures price effectively converges to spot, funding rates are charged in 8 hour frequencies. Extra liquidation fees on stop outs and a limit on the number of open trading positions, are also daily life for crypto exchange traders.     

As a more mature product, CFDs are more standardised than what’s on offer at exchanges. With a CFD, you are referencing the actual spot rate for which you can go long or short, just as you do any fiat currency. Swap interest rates do apply to CFDs, but you are allowed to keep any position open for a full day before being charged any cost. Plus, getting stopped out doesn’t come with any unexpected liquidation fees. 

#3 Convenience

Convenience is the final reason to consider trading a crypto CFD versus crypto traded on exchange. With a CFD brokerage account, you can trade more than one asset class all from the same brokerage account. VARIANSE, for example, offers 200+ different CFDs across 6 different asset classes including FX, metals, indices and equities. Trading through a single brokerage account has numerous advantages. For one, risk management becomes a whole lot easier when you aren’t trying to tally more than one account, particularly in terms of automation, a subject I’ve discussed in two separate articles in the past. Good risk management is paramount, and one of the few aspects of trading where the trader has 100% control. 

If you are already trading or planning to trade, CFDs offer a wider selection of trading platforms with a number of different software solutions to automate trading. Here at VARIANSE, our cTrader platform comes packed with goodies, including all sorts of functionality that does not come standard on most platforms; cTrader has performance tracking, advanced charting, depth of market level 2 pricing, the ability to copy trade and offer copy trade strategies, and a whole suite of other features. Thanks to crypto CFDs, I can stay in this amazing trading environment and get exposure to the full breadth of crypto currencies and much more.

Final Thoughts

Trading crypto CFDs makes a great substitute to trading crypto on an exchange. Regulation, transparency, and convenience are some of the top reasons to choose crypto CFDs over an exchange. Likewise, the prior benefits of trading on exchange, such as tighter trading spreads and lower commission costs, no longer hold true. Here at VARIANSE, we’ve worked hard to offer you raw spreads on Crypto currencies, which stay at near zero, the lowest commission, and best execution on the 23 biggest crypto currencies all available on our award winning cTrader platform. Whether you are new to crypto trading or just looking for a safer way to trade than exchanges, then you must trade VARIANSE crypto CFDs. Open and fund new VARIANSE crypto account and enjoy a 10% deposit bonus - click here to find out more.