Cryptocurrency CFDs are financial instruments that allow investors to speculate on the price of digital assets without actually owning them. In Australia, cryptocurrency CFDs are available through several online brokerages.
Cryptocurrency CFDs are traded on margin, meaning that investors only need to put down a small percentage of the total trade value as collateral. It allows for leverage, which can magnify profits – but also losses.
Before trading cryptocurrency CFDs, it’s essential to understand the risks. Volatility is one of the critical risks associated with digital assets, and prices fluctuate rapidly.
Another risk is that cryptocurrency CFDs are not regulated in Australia by any specific financial regulator. It means that there is no protection for investors if things go wrong.
Cryptocurrency CFDs may not suit everyone, so make sure you understand the risks involved before trading. If you’re not sure, seek independent financial advice.
Find a broker
Cryptocurrency CFDs are traded through online brokerages. Some typical brokers that offer cryptocurrency CFDs include Plus500, eToro and IG.
When choosing a broker, it’s important to compare fees, account types and the platforms they offer. Before starting, make sure you understand the risks involved in trading cryptocurrency CFDs.
Open an account and deposit funds
Once you’ve chosen a broker, you’ll need to open an account and deposit funds. You can usually do this via bank transfer or credit/debit card.
Most brokers will require you to verify your identity with documents like a passport or driver’s licence to comply with anti-money laundering regulations.
Choose your position
When trading cryptocurrency CFDs, you can take a long or short position. You’ll take a long position when you expect the asset’s price to rise, while a short position means you expect the price to fall.
You can also choose how much you want to trade, known as your position size. It is usually expressed in lots, with each lot worth $100.
Place your order
Once you’ve chosen your position, it’s time to place your order. Most brokers will have an online platform that you can use to buy and sell CFDs.
The broker will place your order at the current market price. For example, if the current price of Bitcoin is $10,000 and you want to buy one lot, your order will be for $1,000 worth of Bitcoin. Click here to see the Saxo markets.
Monitor your position
Once your order is placed, your CFD will start to track the underlying asset’s price. You can monitor your position via the online platform provided by your broker.
If the market moves in your favour, you can close out your position at any time to take profits. Alternatively, you can let your position run until the expiry date – but remember, prices can move against you and for you.
Close your position
When you’re ready to close your position, all you need is to place an order to sell your CFDs for them to be executed at the current market price.
If you’re taking a long position, you’ll sell your CFDs when the price is higher than you bought them. If you’re taking a short position, you’ll sell your CFDs when the price is lower than you sold them.
Withdraw your profits
Once your position is closed, your broker will settle your account, and you can withdraw your profits. You can do this by-way-of bank transfer or credit/debit card.
It’s important to remember that any profits you make from trading cryptocurrency CFDs are subject to capital gains tax in Australia.
Benefits of trading cryptocurrency CFDs
Cryptocurrency CFDs are traded on margin, which means you only need to put down a small deposit – known as a margin – to open a position. It allows you to trade with more money than you have in your account, giving you the potential to make more significant profits.
Short selling refers to when you sell an asset that you do not own in hoping to repurchase it at a lower price so you can make a profit. With cryptocurrency CFDs, you can short sell without actually owning the underlying asset, meaning you can profit from falling prices and rising prices.
Brokers usually charge commissions on each trade, but the spread – the difference between the buy and sell price – is usually low with cryptocurrency CFDs. Your costs will be lower than buying and selling the underlying asset directly.