Knowledge base

The cryptocurrency market can get stuck in what seems like an endless bear trend. But it does not mean that you should lose interest in trading cryptocurrency. Today, thousands of traders are still trying to maximize their benefit from the current market conditions.

Many of these investors have realized that traditional investments may not be the best option in this market. This is where tools for speculative trading come into play. Let’s delve deeper into what this entails.

What is Speculative Trading in Cryptocurrency?

When we talk about regular cryptocurrency trading, we mean buying and selling digital currencies from an exchange or wallet. This is the traditional way of trading cryptocurrencies, allowing you to profit from a cyclically growing market. It is also the best method for long-term investments.

In contrast, speculative trading in cryptocurrency is trading in derivative instruments based on underlying assets, i.e. derivatives. This means that you are not buying the actual token or coin, but speculating on their price.

What are Derivatives in Cryptocurrency?

There are several ways to buy cryptocurrency derivatives. For example, in 2017, the first-ever Bitcoin futures were launched, and now you can buy similar products for several cryptocurrencies, including Ethereum, XRP, and Litecoin.

Another popular derivative instrument are ETFs, exchange-traded fund shares. In early October 2022, the U.S. Securities and Exchange Commission (SEC) approved the first cryptocurrency ETF for Bitcoin. It’s expected that this derivative instrument will become a reality for other cryptocurrencies in the near future.

Nevertheless, both futures and ETFs are mainly structured like regular trading. The investors’ calculations are still oriented towards price increases, not the prolonged decrease shown by the cryptocurrency market.

This is where CFD trading comes into play. It is a speculative investment opportunity that can be easily implemented in both rising and falling markets. CFD is a derivative instrument, a contract between the trader and the broker on the price difference.

The trader’s profit depends on their forecast of the price changes. If the forecast is correct, the profit equals the change in the asset’s value. Thus, CFD does not depend on the rise or fall of prices, only on their difference and the correct forecast.

It’s worth noting that CFDs are usually open for just a few minutes or hours and are always traded with leverage, which increases the potential profit for the trader. The best thing about CFDs is that you can easily profit from falling prices. However, remember that if you want to start trading CFDs, you first need to find a stable and reliable broker!

Don’t forget that trading derivatives, as opposed to traditional trading, is slightly more risky in terms of potential losses. However, this risk is compensated by the potential profit, as well as the fact that all services offering futures and CFDs are regulated and operate in accordance with strict requirements.

The choice of how to trade cryptocurrencies is up to you, but it is recommended to explore all the possible options before you start.