How to trade cryptocurrency CFDs

Learn how to trade cryptocurrency CFDs with our guide written by traders, for traders

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How does cryptocurrency trading work?

Cryptocurrency trading is the buying and selling of digital currencies with the aim of making a profit from the changing value of the underlying asset.

A cryptocurrency is traded as a CFD (Contract for Difference) through a broker, which is as simple and secure as trading traditional stocks or forex. With crypto CFDs you don’t own the ‘physical’ asset but simply trade on price movements, meaning you have the potential to profit whether the price is going up or down.

Cryptocurrency CFD trading allows the use of leverage, where a small amount of capital can give you access to a higher value trade. For example, $1,000 in your trading account with leverage of 100:1 allows you to open trades to a value of $100,000. While leverage can generate high returns, it also increases the level of risk.

How to trade cryptocurrency CFDs?

The unique feature of CFD trading, when compared to investing in stocks, is that you don’t take any ownership of a physical asset. Instead, CFDs simply let you invest in the price movements of the underlying asset.

The key benefit of CFD trading is that you’re able to profit in either market price direction, provided you pick the right way. For example, if you believe the price of Bitcoin will rise, you could place a “long” Bitcoin CFD trade and if the price had moved higher by the time your trade was closed, you would make a profit. Similarly, if you believed the price of Bitcoin was set to decrease, you could place a “short” Bitcoin CFD trade, and if the price had moved lower when your trade was closed, you would make a profit.

Find out more about what exactly cryptocurrency CFDs are.

Cryptocurrency CFDs can only be traded by Professional Clients due to FCA regulations.

Ready to start trading cryptocurrencies?

Follow our process to start cryptocurrency trading today:

  • Understand what cryptocurrency trading is and how it works
  • Open a demo or live account and add funds
  • Discover the cryptocurrency you want to trade
  • Select your trading platform
  • Open a position, monitor and close your first trade

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What cryptocurrencies can I trade with Axi?

While Bitcoin is one of the most popular choices in cryptocurrency trading, Axi also provides a range of other cryptocurrencies to trade as CFDs.

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What is Bitcoin trading?

Bitcoin was the first cryptocurrency to be created and it remains the most well known. As with other cryptocurrencies – such as Litecoin, Ethereum and Ripple – Bitcoin is a digital currency that serves as a means of electronic payment for goods and services. While it only exists digitally and there is no physical ‘coin’ that you can hold in your hand, Bitcoin can be exchanged for real money.

There are important differences between buying Bitcoin and trading Bitcoin CFDs. When you buy Bitcoin through a cryptocurrency exchange, you pay the full market price to take ownership of it. However, when you trade Bitcoin as a CFD, you simply speculate on Bitcoin's real-time price movements – either up OR down. One major benefit of CFD trading is the ability to use leverage, where you can use a relatively small amount of capital to open larger trade positions. While this is an attractive way to maximise profits, it also increases the level of risk.

How much money do you need to start trading bitcoin cfds?

One key advantage of trading Bitcoin CFDs (or any CFD) is that a relatively small amount of money can be enough to kickstart a trading journey – thanks to the use of leverage, that amount can be as low as $100. For example, if you applied leverage of 100:1 to an account with $1,000 in it, you could open a position worth $100,000. Note that while this has potential for large profits, leverage can also magnify potential losses.

When deciding on how much money to use in your trading, it’s important to consider your overall risk tolerance level. Some asset classes are riskier and more volatile in nature, while some are more stable and see less price fluctuation. Having a good understanding of your risk tolerance helps you gauge which markets to look at and how much money you should be investing.

Cryptocurrency trading strategies

Explore different crypto trading strategies and find one to fit your trading style and meet your financial goals:

Scalp Trading

Super short term, based on 1 minute to 30 minutes chart

Swing Trading

Holds positions for a few days to a week, based on the 4 hour daily chart

Day trading

Intraday – based on the 1 hour and 4 hour chart

Position trading

Holds positions for weeks or months, based on long term trend and daily to monthly chart

Are there risk management strategies for cryptocurrency trading?

Managing risk is one of the most important aspects of trading, and one of the best strategies is discipline with your risk-to-reward ratio. There is a general rule amongst many investors that if a trade is not going to give you a risk-to-reward ratio of at least 2:1, it may be unwise to take the trade.

Another simple risk management tool to remember is a stop loss. This is a predetermined level, set when the trade is placed, at which the trader acknowledges the trade will have gone against them and it's time to cut their losses. It is extremely effective at preventing large losses.

Having well considered risk-to-reward ratios and a predetermined stop are excellent risk management strategies – not just for cryptocurrencies but for any trading asset class.

Cryptocurrency trading platforms and tools

Access the best trading platforms with all the features you need to trade cryptocurrencies. Start with MT4 – the world’s most popular trading platform – to use custom indicators, Expert Advisors (EAs) and more.

MetaTrader 4

MetaTrader 4 is the smart choice for online traders everywhere who are looking for a trading edge. Simple for beginners and full of advanced functions for professionals, the MT4 platform helps you unlock unlimited trading possibilities.

Learn about MT4

PsyQuation

Built to utilise Artificial Intelligence and Machine Learning, PsyQuation is a highly advanced trading analytics platform designed to reduce your trading mistakes and provide powerful performance analytics.

AutoChartist

Autochartist continuously scans the market for customised trade opportunities, based on realtime pricing and your specific trade setups, then alerts you to potential trades.

Learn about Autochartist

Discover more markets to trade with Axi

Choose from a variety of global markets to trade with Axi, using ultra competitive spreads to trade your edge.

Cryptocurrency trading FAQs

Most people new to trading will head straight to the internet to seek out information about ways to trade Bitcoin and other cryptocurrency CFDs. However, methods differ considerably so it’s important to find the information that's relevant to you and ignore what’s not necessary – especially if you’re brand new to trading and at risk of being overwhelmed. 

With that in mind, you are always welcome to head to the Axi Academy where you can find updated content, written by experienced traders, on all kinds of topics, including how to trade Bitcoin CFDs.

In practice, trading cryptocurrency CFDs is no different to trading any other financial instrument, such as FX, gold, oil or stock indices. This is because you are only trading the price movements and are not investing significant sums to buy ownership of the underlying asset itself. 

However, as a trader you must remember that every asset is subject to unique market forces and behaves in a different way (for example, some products are more volatile than others). This is why technical and fundamental analysis is important. And when trading any financial product, you should have an appropriate risk management strategy in place and make use of the features built into the trading platform that help protect your account, such as Stop Loss and Take Profit tools.

No – trading cryptocurrency CFDs with Axi does not require a crypto wallet as you are only speculating on the price movement of the cryptocurrency, not taking ownership of the asset. 

It is also worth noting that if using a digital wallet to trading cryptocurrencies through an exchange, there are specific risks to consider, including:

  1. Digital wallets are highly vulnerable to hacking attacks and theft – there have been repeated incidents where crypto exchanges have been hacked and cryptocurrencies stolen.
  2. Because cryptocurrencies are based on a decentralised technology, there is no central regulatory body that regulates the exchanges or their market practices. This leaves the individual potentially exposed to fraud and malpractice risk, without any avenue for accountability.

At the time this information was published, there were more than 4000 different cryptocurrencies in existence. Many of these nascent digital tokens have little to no trading volume, but there are a handful that stand out when it comes to trading crypto, with the most traded being those with the largest market cap. 

While the market cap of each cryptocurrency tends to change, in general the top two most traded cryptocurrencies are Bitcoin (BTC) and Ethereum (ETH), followed closely by Ripple (XRP), Cardano (ADA) or Tether (USDT). The cryptocurrencies that are currently offered by Axi are listed below:

  • BTCUSD (Bitcoin VS US Dollar)
  • BCHUSD (Bitcoin Cash VS US Dollar)
  • DSHUSD (Dash VS US Dollar)
  • ETHUSD (Ethereum VS US Dollar)
  • LTCUSD (Litecoin VS US Dollar)
  • XRPUSD (Ripple VS US Dollar)

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