26. April 2024

Crypto Trading Exchange vs CFD Broker

Not everyone is a friend of CFD brokers when it comes to trading Bitcoin & Co. For the fans of crypto trading, CFD brokers are well suited for Forex or CFD trading. For CFDs on cryptocurrencies, they don’t find the conditions generally good. By this they mean possible fees for the deposit or withdrawal. Also the spreads (difference between Ask and Bid price they find too large. On Bitcoin trading exchanges there is no trading interruption over the weekend. The volume-based commission ensures favourable trading costs on crypto exchanges.

At the CFD broker, the trader has to fully verify himself in any case, which is not necessarily a disadvantage. Customers can expect more protection from such sites than is the case with unregulated crypto exchanges or offshore trading platforms. Furthermore, CFD brokers generally offer deposits and withdrawals in USD or Euro or another fiat currency.

What Advantages do CFDs offer Traders?

For CFD traders, buying crypto currencies directly is not a viable option. Bitcoin and Co. are very volatile. The value of a 10,000 USD or Euro investment in Bitcoin can drop by 20 or 30 percent within a short period of time if the market is characterized by larger sales. The year 2018 in particular has shown that the crypto-currency rates can only move downwards for a long time. CFDs are equipped with leverage and allow speculation on falling prices.

CFD profits are subject to the final withholding tax and not the personal tax rate.
CFDs are not physical in nature and are safe, as they are of no interest to hackers. Real coins can be irrevocably lost after a hacker attack.

The capital requirement for CFD trading is low. For active trading accounts 100 USD or Euro or less is sufficient.

CFD brokers registered in the EU are legally active financial service providers who are under a more or less strict supervision of financial authorities such as BaFin (Germany), FCA (UK) or CySEC (Cyprus). In case of problems, traders have a contact person who will take action against the providers in justified cases and help a customer to obtain his rights. Crypto exchanges on the other hand are practically unregulated. The provider alone decides according to which principles the trade takes place or claims are processed. Only from 2020 onwards will the extended regulations of BaFin apply to crypto-companies operating in Germany, such as crypto-marketplaces or Bitcoin Exchanges.

There are also numerous brokers in the field of Forex and CFD trading, based for example in the Seychelles, Belize or Vanatu, with comparatively weak regulation and deposit protection. For these so-called offshore brokers, the mandatory requirements for EU-regulated providers regarding leverage, deposit protection and product range do not apply. Although the brokers are regulated by a national authority, anyone who wants to (and could) sue for their rights in a South Sea state in the event of a dispute does so.

If coins stored at a crypto company disappear due to unauthorised access by third parties or if the stock exchange goes offline with the stocks, they are usually irrevocably gone. Even if a crypto-trading platform ceases to operate during periods of heavy trading due to overload, the trader can hardly ever claim damages.

CFD Broker with Regulation & Years of Experience

Renowned CFD brokers such as eToro, IG or Plus500 not only have official EU regulations. They have many years of experience and offer their customers high-quality solutions in terms of trading platform, trading conditions and customer service.

When trading Bitcoin Leverage with a CFD broker, the official regulation ensures fair and transparent trading. The maximum leverage for CFDs on Bitcoin may not exceed 2:1 for private traders. For inexperienced traders this has the advantage that they do not take too much risk. On the provider side, the opportunities of higher leverage are often advertised and the risks are less discussed.

Especially in FX trades with Euro / US Dollar currency pairs, very high leverage can drive the trading volume exorbitantly high. Levers are sometimes offered by a factor of 500 or 1000. A leverage of 1000:1 means that a trade worth 1,000 USD or Euro moves a volume of one million USD or Euro. Collateral must be deposited for margin trading. If the leverage is high, the collateral provided (equity contribution) is still small. In the above example, this would be 0.1 percent of the trade amount. This all looks very good, as long as the prices move in the desired direction.

As soon as the exchange rate runs against you, it closes after a change of 0.1 percent. There is a margin call from the broker and the position is then closed. The duration of a trade can fall below the second mark in very volatile market situations or in case of a sudden market gap. If, due to a gap, a trade cannot be closed in time and the broker is obliged to make a margin call, the trader must deposit additional money to the capital invested. With offshore brokers, even beginners can easily trade crypto currencies with high leverage, which usually has unpleasant consequences due to total loss.

EU-regulated brokers are obliged to handle client funds with care. They must keep customer deposits and company assets separately. The statutory deposit insurance policies range from 10,000 euros to 50,000 euros. There is no such thing in this form at crypto exchanges.

All Top CFD Brokers offer their traders a well-functioning customer service, mostly also German-speaking. For crypto trading on most exchanges, English language skills are a must. With CFD brokers, deposits and withdrawals can be done in fiat money. Different payment methods are offered from credit card to online bank transfer to e-wallets (Skrill, Neteller, PayPal, Yandex etc.)

Conclusion on Bitcoin Leverage: Optimize Profit Opportunities with Investment Certificates, Futures & CFDs

Investment Certificates, Future & CFD on cryptocurrencies are financial instruments with one thing in common. They all include the possibility to shorten or speculate on falling cryptocurrencies. The possible leverage on Bitcoin, Ethereum or Ripple varies greatly depending on the provider, financial instrument and regulation.

Unregulated crypto exchanges and offshore brokers offer customers a maximum leverage of 100:1 to 1000:1. Investment certificates from a securities bank and CFDs from an EU broker have leverage of 2:1 or just above. In contrast to the direct purchase of Bitcoin, Litecoin or Ripple, where the selection and setup of suitable crypto platforms is initially a laborious process, investors can participate in the price development of a CFD on Bitcoin or an ETN on Bitcoin much more easily.