CFD stands for Contract of Difference. They belong to the group of financial derivatives and allow you to bet on the price developments of the underlying cryptocurrency without actually having to hold it. In order to minimize the risks that come with holding cryptocurrencies (self-management, smart contract risks, exploits or market fluctuations), many traders turn to them. But the biggest advantage that CFDs offer you is Long and short selling and trading with Leverage.
Through Long and short selling You can make perfect use of every market phase (bear market, bull market or consolidation) because you can bet on rising and falling prices at the same time. Contracts for difference are particularly suitable for those who are looking for a fast trading environment and high potential returns.
Leverage trading can be beneficial in any of these market phases as it offers you the opportunity to compound your trading profits. Leverage allows you to enter into trades with more capital than you have available. This works by “borrowing” money from your broker for the duration of your trade, allowing you to open larger trading positions with less capital.
But be careful, because leverage amplifies both your profits and your losses. This allows you to choose between different leverage options that suit your risk profile and trading experience. The following applies: the greater the leverage, the more price fluctuations are reflected in your portfolio.
This is how it works: Leverage with CFDs in practice
As an example, let’s assume you purchase $1,000 worth of cryptocurrencies through a crypto exchange in a non-leveraged deal. On the other hand, another investor makes the same transaction in a leveraged trade. As a non-leveraged investor, you pay the full $1,000.
The investor making use of leverage can choose between different leverage options (2x, 5x, up to 10x leverage and more). In this example, if we assume double leverage, the leveraged investor makes an investment of $2,000 ($1,000 represents the so-called margin).
If the trades are profitable, there is little difference between the two. Profits will be credited to the account once the trade is closed. However, things get interesting when the respective traders make losses. In the case of leverage, the broker must prevent losses from exceeding the leveraged trader’s original margin ($1,000).
If you want to continue to hold a position that exceeds this loss limit, you will have to make additional additional payments. If this does not happen, the broker closes your position and keeps the margin (liquidation). Because of this, trading with leverage involves increased risks. As a beginner, you should start cautiously and start with small, manageable transactions that do not exceed your risk tolerance.
XTB is one of the most popular brokers for contracts for differences (CFDs) with leverage
Through leading brokers like XTB you get access to global markets including stocks, ETFs, Forex, commodities, indices and of course cryptocurrencies. You can trade all of these instruments under a single interface. These do not have an expiry date. XTB is your one-stop shop for trading & investing.
The global company has existed since 2002 and is supervised by the largest regulatory authorities in the world (FCA, KNF, CySEC, BaFin and FSC). Over a million customers trust in the excellent service. This is also shown by the result of brokerwahl.de contrary. Here, XTB was repeatedly chosen as the best CFD broker in 2023 and 2024.
The platform provides you as a trader with the best technologies, the best conditions and the best service. It is not for nothing that XTB is one of the five largest listed CFD brokers in the world. The company has offices in more than 13 countries. These include Great Britain, Germany, France and Chile, among others.
In addition, XTB provides you with all important financial news directly in German on the trading platform and the app. Start trading CFDs today and experience the advantage that XTB technology offers every trader and investor. Join a million investors worldwide and open your account with XTB.
For more information visit the Fire hub by XTB
Disclaimer: CFDs are complex instruments and involve a high risk of losing money quickly due to the leverage effect. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing money.
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