Cryptocurrency trading: CFDs, exchanges

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Cryptocurrency

In the past, it was difficult for businesses to buy cryptocurrencies due to the complexity of the exchanges and the lack of security and transparency in terms of fees. Fortunately, today, the process is much simpler, and there are many reliable platforms to use. There are currently several alternatives available for everyone to buy cryptocurrencies in a safe and almost risk-free way. In this sense, it is recommended that interested companies opt for large platforms with a large user base, which have been designed precisely to simplify the process as much as possible. Throughout this article, we will explain how to buy cryptocurrencies and some tips for you to get the most out of them. Be ready to reap the rewards of prosperity!

Cryptocurrency sites: brokers or exchanges?

This is one of the first questions for every investor or company to ask. Do they want to invest in cryptocurrencies via a broker or an exchange? Both modalities are used to invest in bitcoin and other cryptocurrencies. In terms of results (speaking of investment), there is not much difference.

Brokers

The difference lies in the type of platform, the service offered, and the way you invest. Brokers will offer you cryptocurrencies in the form of CFDs (Contracts for Difference). In this case, the company does not acquire the asset itself. As it happens when you invest in gold or other commodities, you are not actually getting the instrument, but you are investing in the asset.

Rather, you are investing in the possibility that its price will change.

This contract is a simple agreement with the broker, who will pay the difference in the agreed price at the time the company decides to close its cryptocurrency position. For example, although you invest in Bitcoin, you are not in possession of the BTC itself. They almost always offer dedicated customer service, and CFDs allow the company to profit even in bear markets.

Advantages and disadvantages of cryptocurrency brokers

Advantages:

  • These types of cryptocurrency sites are usually regulated and secure platforms for financial transactions. This ensures that your money is in reliable hands and minimizes the risk of fraud.
  • More advanced tools: being platforms that are present in several financial markets, brokers offer advanced INX crypto trading options that allow for better control over your investments. 
  • More payment options: brokers are definitely among the platforms that accept more payment methods. 
  • Larger portfolios: brokers generally have a larger number of financial instruments. 

Disadvantages:

  • The most obvious disadvantage is that you don’t actually own cryptocurrencies. IIf you intend to use cryptocurrencies in a real environment (e.g., obtaining products and services), this is not the most suitable solution.
  • Very high spreads: the difference between the buying and selling price – is usually too high, which is detrimental if you want to open short positions (investments). If you intend to do shorting (faster trading), your ideal buying site is an exchange.

Exchanges

On the other hand, exchanges allow a company to buy and trade real cryptocurrencies. The cryptocurrency wallet is a clear indication of this. This wallet consists of an address (public key) that is equivalent to your personalized account number to receive payments. Owning a fraction of any cryptocurrency allows you to trade it and use it if needed.

By investing in digital currencies by means of exchange, your investment is directly tied to the price of bitcoin in the market. At any time, your company can exchange a given cryptocurrency for another one or regular currency. 

Advantages and disadvantages of exchanges

Advantages

  • Liquidity. It means that an investor can sell their holdings with little difficulty and easily recover the money from the sale.
  • Volatility. It encompasses several stocks in a specific market sector rather than just one. 
  • Market orders can be used. Exchange-traded funds (ETFs) can be sold using market orders, i.e., stop-loss, market, or limit orders. These allow investors to trade ETFs as stocks and offer risk management opportunities and better chances of profitability when day trading.
  • Bond ETFs. Bond ETFs are less volatile and offer a reasonably good way to diversify holdings in fixed income instruments. They can be U.S. Treasury bonds or highly rated corporate bonds, offering stability and security.

Disadvantages 

  • Commissions and trading fees. Experts have argued that ETFs trade like short-term speculations. Frequent commissions and other trading fees, therefore, erode investors’ returns.
  • Limited diversification. Most ETFs, some experts say, do not offer sufficient diversification. Other authorities, with opposing views, say that there are highly diversified ETFs and that holding them for the long term can generate profits.
  • The unknown index factor. Many investment advisors say that ETFs linked to unknown or untested indices are a major negative aspect of investing in these instruments.

How to make the decision?

The choice between a broker and an exchange will ultimately depend on your intentions as an investor. If you have a young startup and won’t be spending much time on it, it’s more advisable to use a broker. Otherwise, sign up on an exchange platform.

5 factors for choosing the best platform to buy cryptocurrencies

  1. Available Crypto-currencies: not all platforms offer buying or trading of all crypto-currencies; for example, Bitstamp does not have Dash.
  2. Commissions and payment methods: costs vary considerably from platform to platform. Check the expenses incurred by the payment method you use.
  3. Wallet, yes or no: some platforms, like Coinbase, also offer a wallet service. This means that you can acquire your cryptocurrencies directly from your digital wallet without having to list the company on the exchange yet.
  4. Security: a good buying platform should offer liquidity and carry cryptocurrencies worth more than a few hundred million USD. 
  5. Limits when depositing or withdrawing your balance.

Conclusion

There are many platforms, as we mentioned, to buy crypto-currencies with their fees, payment methods, advantages, and disadvantages. We suggest you choose the one you feel comfortable with due to the ease of its social trading concept. Such an approach is highly recommended for investors or companies that want to familiarize themselves and/or just starting their journey in the world of cryptocurrencies.