Speculative vs. Regular Cryptocurrency TradingMost professionals would agree that cryptocurrency investments on exchanges and with wallets are the safest option. Derivatives trading, on the other hand, is a little more risky in terms of potential losses. However, that risk is compensated for by the potential profits. So, it’s up to you to decide how you prefer to trade your cryptocurrencies.
The cryptocurrency market might be stuck in a seemingly endless bear market, but that doesn’t mean that the interest in trading cryptocurrencies has disappeared. In fact, there are still thousands of traders trying to make the best of the current market conditions.
What many of these investors have realized is that regular investments might not be the best option in a market that seems unable to find support. So let us take a look at some of your options.
Regular Cryptocurrency Trading
When we talk about regular cryptocurrency trading, we are referring to the buying and selling of digital currencies from an exchange or a wallet. This is the “traditional” way of trading cryptocurrencies, and it’s a great way to benefit from a rallying market or a falling one. It’s also the best method for long-term investments.
When you buy a cryptocurrency from an exchange such as Binance, those assets belong to you. That means you can spend them as actual currencies or hold on to them until you feel like selling them for a profit. The same goes for cryptocurrency wallets and other services that sell cryptocurrencies in their actual form.
The only downside to this type of trading is that it requires the assets to increase in price for you to make a profit and for the past few months that hasn’t been the case.
There are a few exchanges that allow you to short trade assets and even use margins, but generally speaking, you won’t make a profit unless the asset you bought increases in value.
Speculative Cryptocurrency Trading
Speculative cryptocurrency trading is trading with derivatives based on underlying assets. That means you don’t buy the actual token or coin but instead you speculate on its price.
There are several ways one can buy cryptocurrency derivatives. For example, in 2017, the first ever Bitcoin futures was launched, and now you can buy similar products on a handful of cryptocurrencies including Ethereum, XRP, and Litecoin.
Another popular derivative is ETFs which aren’t available for cryptocurrencies yet – the SEC is currently evaluating several ETF applications, and they might become a reality soon.
With that being said, both futures and ETFs are designed mostly in the same way as regular trading and investors expect to make money from increasing prices.
Enter CFD trading, a speculative investment opportunity that can easily be used for increasing as well as decreasing prices. A CFD is a derivative that mirrors the price of an underlying cryptocurrency. They are usually only open for a few minutes to hours and are always traded with leverage which increases your potential profits.
The best part about CFDs is that you can make a lot of profit from falling prices very easily.
If you want to start trading CFDs, you need to first find a regulated and safe broker to use. When it comes to cryptocurrencies, their fluctuating nature creates perfect conditions for day trading, especially for CFDs. In 2017, eToro launched cryptocurrencies as CFDs which then led to them launching an exchange function a few months later according to review of eToro. In the same year IQ Option and few currently major players on the market decided to join in on the hype as well. Regarding IQ Option, it offers cryptocurrency CFDs as well as actual assets, meaning you can invest in two different ways with the broker.
What Type of Cryptocurrency Trading is the Best?
That’s a very good question, and ultimately the decision is up to you. However, in order to benefit from as many opportunities as possible, you should combine different types of trading.
For example, when the market turns bullish again, you can buy a set of assets from an exchange and maybe even invest in some futures. Then you’ll hold on to these investments until you think it’s time to sell and pocket your profits.
At the same time, you can use CFDs to day trade on price swings and make regular profits on a daily or weekly basis. And when the market turns, you can short the prices and keep making a profit.
It’s a win-win situation when combining different trading styles and instruments.
Most professionals would agree that cryptocurrency investments on exchanges and with wallets are the safest option, although not necessarily the most lucrative. And let’s not forget that cryptocurrency exchanges aren’t regulated meaning your funds might be lost and the exchange can turn against you since you have no support.
Derivatives trading, on the other hand, is a little more risky in terms of potential losses. However, that risk is compensated for by the potential profits as well as the fact that the services offering futures and CFDs are all regulated and operated under strict requirements.
As mentioned, it’s up to you to decide how you prefer to trade your cryptocurrencies, but it’s advisable to look into all of your options before you get started.