Many traders enjoy trading cryptocurrencies, including Bitcoin because they are volatile instruments that are subject to unpredictable swings. Long-term traders may prefer to purchase the underlying asset, hoping the value grows over time, while others prefer to trade Contracts for Difference (CFDs).
With CFDs, traders do not need to own the underlying asset. Rather, they can use a trading platform to open a position against Bitcoin’s price movements by opening long or short positions.
For example, if a trader believes that the price of Bitcoin is going to rise, they can open a ‘Buy’ position with a Bitcoin CFD. While they will not own any Bitcoin from this transaction, they can still profit off of the coin’s movement, should the price go higher than the value at which the position was opened. At the same time, if the value of Bitcoin drops below the value at which the position was opened, they will have a loss.
On the other hand, if they believe that the value of Bitcoin will drop, they can benefit from this too. By opening a ‘Sell’ position, they can potentially profit from Bitcoin’s negative price movements. For example, if you open a Bitcoin CFD Sell position while Bitcoin is at a certain price and the price drops $200, you can close the position, without needing to find a buyer, and profit $200. At the same time, if you open a Sell position for the same amount but close it when the price rises with $200, then you would lose $200.