There has been a remarkable shift in the crypto market this year. After Bitcoin, Ethereum is the most popular and safe cryptocurrency to trade as both cryptocurrencies are recorded on their longest respective blockchains. In addition, there are multiple ways to trade Ethereum, such as CFDs and the traditional method of trading cryptocurrency on an exchange.
Recently, Bitcoin ETF was listed on NYSE, due to which the craze of crypto trading has increased more. This move clearly indicates that why cryptocurrencies have a huge potential. Most traders diversify their portfolios by considering cryptocurrencies also. And ethereum is one of the most popular cryptocurrencies.
But how can you get exposure to cryptocurrencies without getting their ownership? Here comes cryptocurrency CFD trading. Let’s learn how one can implement CFD trading by choosing the right brokerage firm.
What is CFD trading?
CFD trading (Contract for Difference) is a way of trading and investing in an asset that allows traders to invest in an asset by entering into a contract with a broker rather than taking a position directly on the market. CFDs are investment vehicles for individuals who want to take their cryptocurrency trading to the next level.
CFD trading has a number of advantages that direct trading does not, including access to overseas markets, leveraged trading, short positions for assets that do not usually have that option, and more.
After the trader and the broker agree to duplicate market circumstances, they will settle the difference when the position closes. That is how you also can trade CFD on Ethereum without owning it. This is also one of the best ways to maximise profit and minimise potential losses.
Why trade Ethereum CFDs instead of using traditional methods of trading?
101investing offers combined bitcoin CFD trading with other asset types in a single account. Contracts for Difference, or CFDs, are derivative securities that allow traders to speculate on a variety of financial markets without actually owning the underlying asset.
Cryptocurrencies are traded in pairs with traditional currencies. So, for example, to trade Ethereum, you don’t need an account with an Ethereum exchange or an Ethereum wallet.
Using CFDs to trade cryptocurrencies gives you the freedom to speculate on whether Bitcoin will climb or decrease. This means that there are more trading chances because cryptocurrencies can be bought and sold for profit.
The spread is the most expensive part of trading a cryptocurrency CFD. The spread is the difference between the lowest and highest prices at which you can purchase and sell.
How to trade Ethereum?
You can take a short position, which means that if the price of Ethereum falls, your position gains value, and if the price rises, your position loses value. This is very similar to shorting a company’s stock. While other platforms may necessitate a lengthy process to obtain a blockchain wallet, 101investing requires simply a verified account and a deposit to begin trading.
101investing allows you to trade CFDs on the world’s most volatile digital currencies, so on Ethereum. There is no need to invest directly in Ethereum. Instead, invest in the market by buying and selling CFDs, just like any other currency pair.
Fundamental and technical analysis are the two basic ways to analyse cryptocurrencies. The news and events that affect currencies, exchanges, and other crypto firms are used in fundamental analysis. You can use the same strategy to conduct technical analysis and fundamental analysis while trading Ethereum.
The introduction of new cryptocurrency technology, the new regulatory framework by the government, and issues with cryptocurrency exchanges all have the potential to alter coin supply and demand. Therefore, only price data is used in technical analysis to map past supply and demand areas for cryptocurrencies.
Any market where the price can easily vary and data are available to see those swings can benefit from technical analysis approaches. All of the most well-known technical indicators and chart creating tools are available on the 101investing trading platform.
One of the benefits of trading Ethereum is that it appears to have little correlation with traditional asset classes such as bonds or the stock market. Some argue that cryptos are more accurate to classic chart patterns and signs of oversold, overbought, and other circumstances because of the significant concentration of retail traders.
Importance of Blockchain in Ethereum CFD trading
Traders can trade with confidence, knowing that there will be no market disruptions or malpractices. The trade is conducted entirely online, with dealers using e-wallets to hold cryptocurrencies for safe transactions. By checking the transactions, the programme ensures a secure trade.
Traders are validated using algorithms in cryptography, which means traders have security because there is no double-spending and transactions are protected. By documenting trades, blockchain technology, on the other hand, makes commerce transparent. It functions similarly to a ledger, storing all transactions and making them publicly available in blocks to investors.
However, traders should be aware that these do not display the traders’ names, but rather the traders’ key code. As a result, each trader’s key code is personal and should be kept confidential.
Furthermore, cryptocurrency is a decentralised market that is free of government or central authority intervention. As a result of its services and digitalisation aspects, bitcoin trading is highly secure and has promising market prospects in the near future.
What about CFD trading in Ethereum?
Before investing, a trader should conduct an extensive study regarding the market and its products. As a result, traders should exercise caution while investing in cryptocurrencies. Here is a compiled list of crucial factors that make ethereum trading a viable option. Trading comes with a lot of risks, and the cryptocurrency market is especially volatile, making it difficult for investors to make money.
- Ethereum used to be based on the same technology as bitcoin, which is proof of work, but it has since switched to proof of stake. As a result, traders can obtain distributed consensus by migrating to proof of stake, a consensus technique, on the blockchain.
- The value of ethereum is rising, and it currently holds second place in the market. However, because the high cost makes trading difficult, traders can purchase these from brokers at a fractional or cheap cost.
- After bitcoin, Ethereum is the second most popular cryptocurrency; traders who cannot afford bitcoin can go for ethereum. Furthermore, market swings have kept the market moving as prices have changed. However, ethereum has remained in second place for a long time.
- Shifting from POW to POS, on the other hand, is tough and requires a lot of thought. Traders benefit from proof of stake because it improves efficiency, lowers market entrance barriers, and provides strong centralisation and support. Traders must stake their ethereum and become a validator in the trade network in order to participate in POS. Validators work in the same way that POW miners do.
- It’s fractioned into little units before being traded on the internet. Ethereum may be divided into eighteen pieces, allowing a trader to invest in and trade a penny cryptocurrency.
- The cost of trading ethereum is determined by the trader’s preference; brokers and exchanges charge different fees. For example, some charge deposit and trade fees, while others may charge an additional deposit, withdrawal, commissions, and interest fees, among other things. As a result, before investing in the cryptocurrency market, traders should think about all of these factors.
- Ethereum has a high level of market liquidity and trade volume, making it a suitable investment option. Since its inception in the market in 2015, Ethereum has established itself; in just two years, the digital currency has carved out a niche for itself. It has risen in value since then, and it now has a high market value. As a result, the traders’ importance is increased, as well as their confidence.
- Ethereum is more capable and has the most advanced trading system. The ethereum blockchain is used to facilitate trading using smart contract technology. Traders of ethereum can now trade with two or more parties without having to trust them. The ethereum contract is self-contained, and transactions are carried out according to predetermined parameters.
Benefits of Trading Ethereum CFDs
Investors can trade the markets with a lesser initial deposit by using financial leverage. Ethereum is governed by no central authority and can be exchanged anywhere. It is digital money that is traded online, similar to other financial alternatives. As a result, traders are able to own and store ethereum legally.
No restrictions are prohibiting the trading of ethereum all around the world. However, using advanced trading platforms of 101investing to trade cryptocurrencies will allow you to use advanced order types to place trades and, more importantly, manage risk.
As a result, CFD trading is more accessible and affordable than other investing options. It does, however, come with an additional amount of risk. Therefore, before initiating a position, an investor must understand how CFD trading works and have a good risk management strategy.
Limit and stop orders will allow you to purchase or sell at the current market price or choose a preferred entry point. When the Ethereum price reaches that level, these orders will be automatically triggered.
Risks of trading Ethereum
- Traders must be aware of the competition before investing; ethereum is not the only blockchain-based cryptocurrency available for trading. There are a lot of them, which makes it tough for traders to decide which ones to invest in. In addition, countries are drafting rules for cryptocurrency trading, which could result in bans or other consequences; one never knows.
- Because the price of cryptocurrencies fluctuates with dynamic changes in the world and prices, there is still a danger of trading. Bitcoin, Ripple, Litecoin, and Shiba Inu, among other cryptocurrencies, compete with Ethereum.
- Due to the presence of other tradable investments, trading in the financial markets is extremely competitive. In addition, the trade of cryptocurrencies has no clear or defined norms and regulations, yet the market is always changing.
- Because ethereum has a high market capitalisation, its value is less volatile than currencies with smaller capitalisations. As a result, a trader should thoroughly research and analyse the market and securities before investing.
How to manage risks successfully?
CFDs are suitable for traders of all levels of experience, trading styles, and risk appetites. For example, traders can determine their leverage ratio instead of being limited by the asset price by assessing their risk appetite when opening a transaction. In addition, traders can use derivative products to trade with considerably less capital than they would if they traded cryptos directly on exchanges.
Traders can also make educated decisions on their available jobs thanks to regular account updates. CFDs make it easy to maintain a robust risk management strategy. Before going into a contract, traders can easily place their stop loss and take profit orders.
CFD trading is very beneficial for traders as it can provide you with multiple to get exposed to the digital currency without getting any actual ownership. But traders must be aware of the risks associated with CFD trading as CFDs are highly subjected to market risks. Therefore, it is traders’ responsibility to monitor their trades with a proper risk management approach.
You can trade CFD on Ethereum under well-regulated and award-winning broker PrimeFin.