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Bitcoin CFD: What is it and how does it work?


The rapid advance of the Internet has made entering the world of investments an easy task, and derivative instruments such as CFDs or futures are one of the main access vehicles to invest in a variety of assets, from stocks and indices, to Bitcoin and gold.

What is a Bitcoin CFD?

CFD stands for contract for difference, translated into Spanish as contract for differencebasically its name defines it.

It consists of a contract between 2 parties, who acquire the obligation to pay or collect the difference between the purchase and sale price of the underlying asset.

Being a role where the fulfillment of an obligation is demanded, it is flexible to take advantage of both bearish (short) and bullish (long) movements.

For example, a trader buys a long Bitcoin CFD, waiting for the price to rise.

If this does not happen by the time of expiration or early closing of the contract, the merchant must pay the difference between the purchase and sale price to the counterparty. The exact opposite happens in case the trader’s forecast is accurate.

They are offered by brokers, who function as mediators, and accept a part of the contract.

They are generally used with leverage, probably one of the biggest attractions of this type of financial instrument. Let’s see next what this is about.

What is leverage?

It is defined as the direct relationship between capital and credit. In the case of CFDs, the leverage is offered by the broker.

With this tool, the merchant can multiply their purchasing capacity x10, x50 and x100 times.

By using leverage 1:10, or 10x, a trader with a capital of $ 1,000 can open positions of up to $ 10,000.

Thanks to it, it is possible to obtain very good profits, no matter how small the price fluctuation.

However, it must be used with great caution, because just as much can be gained, losses can be of the same magnitude.

When opening a trade larger than your initial capital, your entire deposit is at risk, unless you use stop loss, which allows you to lose only a small percentage, it is generally not recommended to invest more than 3% per trade.

Broker to trade CFDs on Bitcoin

Knowing how this derivative product works, we are now interested in knowing where we can use it.

One of the best brokers to invest with cryptocurrency CFDs is Plus500, a place that we can recommend with total security, thanks to the excellent service they offer, and the transparency of it.

With Plus500 it is possible to open a demo account, with which you can learn to use its trading platform without putting anything at risk. This is the best way to find out how Bitcoin CFDs works.

How to trade CFDs on Plus 500?

To start, the first thing you should do is open an account, in the case of a demo account, the procedure is extremely simple, just put an email and password.

Upon entering, you will immediately be in the trade section, where you can observe the wide variety of CFDs.

Screen for trading on Plus500.
Screen for trading on Plus500.

Bitcoin is one of the most popular assets, so you will find it first. In case it is not, you get it in the section “Cryptocurrencies”.

Next to the name of the CFD, you find information regarding the asset, as well as the Buy and Sell buttons.

Clicking on any of these buttons opens a new tab, where the number of contracts, the price for closing profit and loss is modified.

Profit and loss taking will be observed in the graph on the left, after they are modified in this new tab.

The contract calculator indicates in the bottom left, the margin required to open said position, in the case of using 1: 2 leverage, a Bitcoin CFD at today’s price requires a margin of USD 4,578.67.

Plus500 offers leverage of up to 1:30 for cryptocurrency CFDs.

Bitcoin CFD on Plus500.
Bitcoin CFD on Plus500.

So we end this little tutorial on what they are, how they work, and where to trade Bitcoin CFDs. We hope it has been to your liking. You can leave any opinion or suggestion in the comments.

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