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%
NordFX information and reviews
NordFX
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

Money Management: One of the Keys to Success

Online trading of currencies (Forex), cryptocurrencies, and CFD deals with other financial assets (stocks, gold, oil, etc.) offer unique opportunities...

Best Currency Pairs to Trade for Beginners

Forex is a financial market where currencies are bought and sold to make a profit. Trading in the Forex market is done in pairs, each consisting of two currencies...

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...

What is Forex and how to trade on it?

The term Forex - also known as foreign currency trading, currency exchange or by its acronym FX - refers to Foreign Exchange or to transactions between currencies...

Forex Market Structure

The Forex market is close to being a textbook example of a perfect market that humanity created. Namely, a market is any place where buyers and sellers meet...

Beginner's Guide to Forex Trading with FXTM

If you're new to the world of forex trading and looking to embark on your trading journey, you've come to the right place. Forex trading can seem complex at first, but with the right guidance...

Forex Market Hours

Other than being the largest and most talked about financial market out there, Forex has a very appealing characteristic - around-the-clock operation. Being available...

ETF vs Index Fund: Similarities and Differences

Wondering what is the difference between ETFs and index funds? This article explains that and more, including what to look out for when choosing between them. Index funds and ETFs...

Everything you should know about mutual funds

A brief introduction to mutual funds and why you should invest in them, the risks, who should invest, their performance and the alternatives. Every year...

The Discipline of Setting your Stop-Loss Order

Are you wondering how you can more easily manage and monitor your trades? This article will show you the benefits of setting stop-losses in your daily trades!

Guide to Forex Trading Costs: Unraveling the Fees

Forex trading, much like any financial venture, comes with its own set of costs. Grasping these costs is crucial for every trader, as it not only influences their bottom line but can also provide..

What should you know about cryptocurrencies?

eXcentral is expanding the number of assets and markets available for traders to invest in every month. One of the highest growing markets, if not the highest...

Liquidity: How to Find the Right Assets and Markets

Liquidity is a common term in the financial world. Market liquidity determines the speed of market operations and an investor's ability to earn money on a specific asset...

The Advantages of Commodities Trading

Commodity trading relates to the buying and selling of a large range of instruments including oil and gas, metals and cocoa, coffee, wheat and sugar. Commodities are categorised as hard and soft...

Frequently asked questions about Cryptocurrency CFDs

Bitcoin is a digital currency that was created in 2009. Its creators are unknown, as they disguised themselves using the alias of Satoshi Nakamoto. When Bitcoins are bought or sold...

Optimal & Suboptimal Hours in Forex Trading

In the grand tapestry of financial markets, the needle of time weaves intricate patterns. Among traders and investors, the perennial quest to discern the right moments to enter or exit the market resonates deeply...

An Introduction to Precious Metals

Precious metals have been used as an investment option as well as a method to store wealth, with gold being the most commonly used. Today there are many ways to trade...

The Essentials of Commodity Trading: A Beginner's Guide

Commodity trading, involving the buying and selling of raw materials and agricultural products, is a complex yet rewarding venture in the financial markets...

Understanding the Nuances of Limit Orders in Trading

In the intricate and fluctuating world of trading, limit orders emerge as an essential tool for investors and traders aiming to assert control over their transaction prices...

What is a Bear Market? A Complete Guide

Sometimes, during market cycles, the stock markets may plunge, and prices could fall. It may be for a short period of weeks or months, or even drag on for years...

Vantage information and reviews
Vantage
85%
FP Markets information and reviews
FP Markets
81%
IronFX information and reviews
IronFX
77%
T4Trade information and reviews
T4Trade
76%
Exness information and reviews
Exness
76%
Just2Trade information and reviews
Just2Trade
76%

© 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.