What the product is
A cryptocurrency CFD is a contract with the broker whose value moves with the price of a coin on a reference exchange. The trader deposits margin, chooses a direction, and profits or loses on the price change in the account's currency. No coin is bought, no wallet is involved and the position can be short as easily as long. It sits beside the currency pairs on the same platform, which is its main attraction for a trader who already has a forex account.
How it differs from buying the coin
Buying bitcoin on an exchange gives you the coin, in the exchange's custody until you withdraw it to a wallet you control, with no counterparty once withdrawn, no expiry and no financing charge. The CFD gives you a claim on the broker, leverage, and a daily financing charge that is far higher than on currency pairs, often a percentage of the position value per day, which makes it unsuitable for holding beyond days. The exchange's costs are a trading fee and, for margin positions, a funding rate; the CFD's are the spread and the overnight charge. For a short-term leveraged view the CFD is convenient; for ownership the coin is the only option.
Where it is allowed
- United Kingdom: banned for retail clients since January 2021. UK residents can buy coins from a registered exchange but cannot trade a crypto CFD with a UK-regulated broker.
- European Union and Australia: permitted at 1:2 leverage for retail clients, with negative balance protection.
- United States: not offered by retail forex dealers; crypto derivatives are traded on regulated futures exchanges.
- Offshore entities: offered at leverage of 1:20 to 1:100 and higher, with the protections the entity's licence provides, which are often few.
The risks particular to it
Cryptocurrencies move several times as much as currencies in a day and can move ten percent in an hour, so leverage that is ordinary for forex is ruinous here; the regulators set 1:2 for that reason. The reference exchanges that price the CFD can themselves gap, halt or diverge from each other. Weekend trading, which most brokers offer for crypto CFDs, means a position is exposed when the trader is not watching and margin requirements can be raised at short notice. The crypto CFDs versus spot paper in the research section sets out the comparison in detail, and the site records which brokers offer crypto CFDs, at what leverage and under which entity.
Educational content is general information and does not consider your objectives, financial situation or needs. Forex and CFD trading involves significant risk.