Top Crypto CFD Trading Tips to Help You Trade Profitably

“I think the internet is going to be one of the major forces for reducing the role of government. The one thing that’s missing but that will soon be developed is a reliable e-cash.” – Professor Milton Friedman

Professor Friedman in his quotation mentioned above posits the need for a reliable electronic currency.  He also correctly notes that the Internet’s global role and responsibility are going to change from a pure information access role to that of a decentralised oversight role.

Consequently, one of the questions that beg is: What will be the primary driver of the Internet’s evolving role in the postmodern world?

The cryptocurrency model: A short introduction

According to the Jones Mutual cryptocurrency experts, the current cryptocurrency model that combines the use of a decentralised blockchain ledger and a coin is an ideal vehicle to drive this change. However, before we look at some top investment tips, let’s look at an overview of the cryptocurrency model.

Why is this relevant?

Succinctly stated, the current (and future) successes of the cryptocurrency industry are fundamentally driven by the digital currency model, methodology, and functionality.Ergo, it is the separate elements of this model and their integration that ensures cryptocurrency’s successes. Therefore, it makes sense that a basic understanding of, and insight into, how digital currencies operate will help investors make wise investment decisions.

The first digital currency to gain traction and receive positive exposure was Bitcoin. Its invention was announced at the end of 2008 by Satoshi Nakamoto as a “Peer-to-Peer Electronic Cash System.

The Bitcoin framework consists of an underlying blockchain ledger and an associated coin. The coin is mined by solving hash algorithms and records of the coins mined are stored, in an encrypted form, in individual blocks in the decentralised blockchain ledger.

It is also possible to buy and sell coins and to pay for goods and services (if the service provider affords clients the opportunity) to pay using Bitcoin. One of the most critical points to bear in mind is that the crypto transaction records (blocks) are not stored on a central server. Copies of the block, including an encrypted version of the previous block, are stored every computer running a Bitcoin client.

Cryptocurrencies: CFD Trading

Before we look at several top tips to help you invest in cryptocurrencies, let’s have a quick look at what a Contract for Difference (CFD) is:

According to Investopedia.com, aContract for Difference is an “arrangement made in a futures contract whereby differences in settlement are made through cash payments, rather than by the delivery of physical goods or securities”.

Some of the benefits of trading on CFDs are as follows:

  • A CFD is a leveraged financial instrument; therefore, you do not have to buy and sell large amounts of a linked asset to profit from the asset.
  • Because you are trading on price movements and not buying and selling assets, you can profit from both rising and falling prices.
  • You do not need to tie up large amounts of your capital when trading on CFDs so you can utilise your investment spread in order to ensure maximum ROI (Return on Investment).

Finally, here are several top tips to help you trade profitably:

Exposure to risk

A Contract for Difference is designed to benefit from fast-moving, highly volatile asset prices. Thus, it has the potential to be an extremely high-risk trading instrument. Therefore, it is vital to be mindful of this fact continually and to trade according to strategies that reduce your investment’s exposure to risk.

It is also worth remembering that the higher an investment’s exposure to risk, the higher the chance of a substantial profit from the investment. However, at the same time, there is an equal risk of losing more than your initial investment. You can wipe out your entire trading account with one losing trade.

Plan your trades properly

Therefore, it is vital to ensure that you plan your trading strategy implicitly before you open your trading position. You need to look at fundamental and technical analysis tools like geopolitical and socio-economic news events, charts, graphs, and oscillators to determine which way the linked asset’s price will move in your chosen timeframe.

Invest small amounts

It is not necessary to invest large amounts when placing a trade. This exposes your investment to the risk of significant losses.  You will not realise massive profits, but your losses will also be kept to a minimum. It is easy to forget that placing many losing trades equates to a substantial investment in itself.  Therefore, it is far better to trade small amounts.