HFM information and reviews
HFM
96%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
89%
FBS information and reviews
FBS
88%
XM information and reviews
XM
86%
Exness information and reviews
Exness
86%

Is CFD trading a better option in 2022/23?


It wasn’t so long ago that only the elite and wealthy had access to the global markets. Back then, a traditional trading account would require a deposit of at least $25,000 (USD), and that was one of the smaller brokers. Some investment firms required no less than $100,000 of equity just to join. But is it better to own the actual asset? Are there advantages that come with a contract for difference (CFD)? And when it comes to crypto, which venue is safer, an exchange or a CFD broker?

Let’s explore CFD trading, and compare with traditional brokers and exchanges so you can decide for yourself which offers the most security and advantages.

Exchanges: Here today, gone tomorrow

It’s all over the news, another big-name crypto exchange fails, leaving a wash of traders out of pocket. It wasn’t the first, it won’t be the last. According to a study by Tyler Moore and Nicolas Christin, the failure rate of Bitcoin exchanges is 45%. Over the last two years, dozens of crypto exchanges have died and now rest in pieces in a crypto crypt, but the one on everyone’s lips today is FTX. The collapse of one of the biggest cryptocurrency exchanges in the world is still making huge ripples in the cryptocurrency sector. The scandal surely caused Bitcoin to lose almost 25% in a single day. FTX clients abandoned the exchange after rising concerns that the exchange lacked the funds to cover all the holdings.

FTX tried to sell itself to competing cryptocurrency exchange, Binance. Binance canceled the deal after performing due diligence on FTX's balance sheet. Nobody knows what Binance found that broke the deal, but according to its bankruptcy filing, FTX cited over 130 associated companies, valued between $10 billion and $50 billion. So what went wrong?

FTX announced that someone had gained illegal access to its accounts. Now, it's possible that it's pure coincidence that their servers got hacked right after bankruptcy. But it wasn’t long before a theory emerged that an FTX staff member simply embezzled the money. Analytics company Elliptic estimated that over $477 million in crypto went missing from the huge exchange. So can this sort of thing happen to a big CFD broker? The straight and easy answer is no.

CFD broker client holdings

There are multiple safeguards in place to stop such a thing happening to a CFD broker’s trading clients. Let’s use Exness as a benchmark, but not all brokers offer the same conditions and protections that Exness does.

CFDs vs buying the asset

When buying the actual asset, leverage is not an option. If you wanted to buy 10 AAPL stocks at $148 (USD) per share, you’d need to shell out $1480. If the market moves and AAPL rises $2, you earn $20.  However, for CFD trading, leverage is always available so less capital is required to open such a position.

Traditional investors often criticize leverage. Many believe it causes greater losses for the traders, and not greater profits. To be clear, 100X (1:100) leverage can increase profits by 100, but it doesn’t increase losses by 100. It does, however, increase the sensitivity of the open order by 100. Even the smallest price move in the wrong direction can stop out an account.

So the reward is higher, but so is the risk. Exness allows clients to open multiple sub-accounts, each with customized leverage ranging from 1:2 to 1:2000.

Long and short trading with CFDs

Traders have more control over how they open positions. With exchanges and traditional brokers, client profit only occurs when the asset rises. If the value of the asset falls, so does the investors' equity. CFD traders can have exactly the same experience when “buying”, a CFD, and since the contract prices are derived from the market price of an asset, the results are almost identical. CFD brokers, especially market makers, can offer lower spreads, so for some financial instruments, you’ll get better trading conditions with CFDs.

In addition, CFD traders have the opportunity to short a currency, stock, or commodity with ease, which means there’s always a profitable scenario, no matter what the market or economy is doing.

With CFDs, you can hold precious metals without any of those costs, and without a time limit. And you can short or hedge positions whenever needed, trading on margin, without additional margin requirements or the need for another deposit.

The bottom line

Trading CFDs offers the same buy and sell prices, or with some instruments, better-than-market prices. It allows traders to choose leverage on multiple trading accounts to balance volatility with reward. The CFD broker doesn’t hold the money as its own, and the withdrawal process, which is set up to combat anti-money-laundering, protects the clients from having their money siphoned off to another account. CFDs allow traders the option to buy/long or short an asset, so a healthy growing economy is not the only time a CFD trader can see profit. All in all, CFDs offer a lot for traders.

#source


RELATED

Forex Copy Trading: A Complete Guide

Copy trading is an increasingly popular trading strategy among forex traders. Like its name suggests, copy trading involves copying or following the trades made by other traders...

What Is a Limit Order?

A limit order is an order that has a prespecified price to buy or sell a security. For example, if a trader is looking to purchase stock with a limit of $10.50, they will only buy the stock...

How to buy cryptocurrencies for beginners?

To venture down the path of cryptocurrency trading, one needs a good understanding of what trading typically entails. We’ll be looking at both topics in this article...

Gold Trading Online: Everything you Need to Know

Gold is considered a popular precious metal and is also the earliest mined metal in the world. It is believed to have originated from space debris and not from planet Earth...

Choosing the Proper Forex Trading Strategy

A simple trading strategy is what most traders choose as a starting point. For instance, when a certain currency pair tends to come back from a particular...

How to use MT4 WebTrader: A Useful Guide

In 2005, the MetaQuotes Software released the MetaTrader 4 trading platform which is an electronic trading platform that includes all the required features...

The Strongest Currencies in the World

Have you thought about what the highest currency in the world is? Is it the US dollar, the euro, or the British Pound? No, they are not. They are the world’s most famous, most traded...

A brief article on Investing in Silver CFDs

Gold and Silver are precious metals that has been known to man since the olden days. Investing in Silver and Gold also dates back to prehistoric times...

How to become a Forex trader

While Forex is an exciting and lucrative financial market, many traders face difficulties when trying to make steady profits and grow...

Federal Reserve System: What It Is And How It Works

The Federal Reserve System (Fed) is the most important money management organization in the United States. However, its influence is much wider, it has a strong impact on global economic growth...

Investing vs. Trading: What’s the Difference?

Over the past couple of decades, many people started showing interest in profiting from financial markets, whether through trading or investing. However, it has become evident...

Is it Worth it to Study Forex? A Comprehensive Exploration

As the world of day trading and investing continually evolves, many are drawn to the allure of forex trading. The question often arises: is it worth dedicating time and effort to study forex?

Choosing a trading instrument: how to trade stocks and CFDs on stocks

We continue our series of articles on choosing a trading instrument. This time you will learn what CFDs on stocks are, how to trade them and how such...

Ten Reasons You Should Learn To Read Price Action

As Charles Dow stated, the price is an excellent market data storage. It is the price that contains all the necessary information, and its movements demonstrate...

Can Brokers Really Manipulate Market Prices?

The trading realm is rife with tales of broker manipulations causing devastating losses. With a plethora of platforms available, how can traders discern between genuine...

AUD/USD correlation explained

The AUD/USD correlation reflects how many US dollars are needed to buy one Australian dollar. It means that if the currency pair is traded at 0.85, then $0.85...

First steps of a trader. Where to start your Forex journey?

Welcome to the world of trading! You probably want to become more active in managing your finance and are now in doubts where to start. This article will guide...

High-Frequency Trading (HFT) - Overview, Advantages, Risks

Everyone who is interested in financial markets, of course, knows about the existence of different trading methods. Some of them are quite popular, while not much is known about others...

The Impact of Social Media on Trading

The paper seeks to illuminate the pros and cons of social media's influence on trading and how important it is to be a financially literate trader. How can a trader benefit from social media?

An Introduction to Contract for Difference (CFD) Trading

Contract for Difference, or CFD is an agreement made between two parties, the buyer and the seller (CFDs broker and client), stating that the buyer should pay...

FP Markets information and reviews
FP Markets
81%
IronFX information and reviews
IronFX
77%
T4Trade information and reviews
T4Trade
76%
Just2Trade information and reviews
Just2Trade
76%
FXNovus information and reviews
FXNovus
75%
Riverquode information and reviews
Riverquode
75%

© 2006-2025 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.