The crypto craze is generating interest from all circles, including financial institutions. It’s no longer only of interest to crypto enthusiasts due to its massive impact and potential on the global economy. More often than not, users require to access cryptocurrencies through a crypto exchange or broker. But how do you find the right one?
A more direct way of getting into crypto is through crypto brokers as it does not require much technical know-how such as crypto wallets. These include Contracts for Difference (CFDs) and a cryptocurrency Exchange Traded Fund (ETF). Crypto Lists explores what to look for when evaluating the best crypto broker.
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Understanding CFDs and ETFs for Crypto
A Contract for Difference (or CFD) is a legally binding agreement of a futures contract between a buyer and a broker. It indicates that a broker will pay a buyer the difference between the current value of an asset and its end-of-the-contract value. The contract’s beneficiary relies on whether the price of an asset increases or decreases.
For example, if the value of the asset increases, the broker pays the buyer the difference, and if the value decreases the buyer incurs losses and pays the broker. CFD traders do not actually own the underlying asset but only speculate on its price movements to profit. The CFD system is effective for all assets, including cryptocurrencies.
Traders seek CFD crypto brokers with favorable trading conditions to engage. Several trading companies have heeded the growing interest in CFDs for digital assets to be part of their trading instruments. Users can sign a CFD with a crypto broker and speculate on future price movements of a token within the validity of the CFD. The system is convenient as neither the trader nor the broker has to own any cryptocurrency to benefit from the future price movements of the token.
Advantages of CFDs
CFDs have several advantages, especially their easy setup without the technical knowledge of direct trading as with crypto exchanges. Users opting for CFDs also benefit from leverage trading where they can trade with more funds than they have. Brokers are not limited to the leverage they offer traders with digital asset regulation. CFDs offer greater margins on future contracts on crypto.
CFDs also offer advanced technical instruments, including stop, loss, and take profit which is critical in the volatile crypto industry. Charts and analysis reports enable traders to have informed speculation when trading with CFDs. These trades are instant which allows traders to take advantage of market movements.
In addition, several are regulated by reputable financial institutions such as FCA and CySec, which builds trust with its users. An Exchange Traded Fund shields beginners from investing in crypto by themselves by issuing yield from a basket of cryptos. It operates similarly to an investment stock fund. They are relatively a new concept, especially in crypto due to the high volatility.
What to Consider when Selecting a Crypto Broker
There are multiple thing to look out for when choosing which path to go down. And, many of the top brokers such as Skilling and eToro have a demo account for you to practice trading on. Below we look at some of the biggest factors to take into consideration.
Regulation and Trading Conditions
Traders must seek crypto brokers that have regulation from the FCA, CySec, NFA, or any other financial institution. This is essential as it protects traders from fraudulent brokers. Regulation by government agencies with enforcement powers like in the UK, USA, EU, and Gilbatar are more reputable than of Singapore and the Caribbean region such as the Bahamas. Crypto brokers with a reputable regulation jurisdiction are often financially stable and liquid.
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Traders must be wary of the trading conditions offered by various crypto brokers. For starters, the price provided by the brokers must be similar to the current market rate. The critical trading condition is the spread between the buying and selling price it offers. Cryptocurrencies with less liquidity and risk often have a wider spread hence you must compare various brokers’ spread fees. There are also fees based on the number of days you hold a CFD position. Ensure you are aware of all potential fees before entering the trade. These charges must not be so high that it potentially takes up most of your profit.
Leverage Trading Offerings
One of the main reasons for seeking crypto brokers such as CFDs is access to leverage trading. Traders seeking to acquire CFDs must seek crypto brokers with reasonable leverages to evaluate the possible earnings and losses as the CFD can go either way. Traders must understand the effect of high leverage and not just focus on its potential earnings. Understand the risks of losing significant funds as well.
Number of Crypto Pairings
Crypto platforms that cater to beginners often have a limited number of cryptocurrencies on offer. Whereas with brokers and exchanges there are an enormous number. Usually decentralized exchanges have the most, but they don’t have the regulation and security you gain from using a broker.
Longevity and Reputation
The longevity of a crypto broker builds confidence in users. A crypto broker that has stood the test time is more likely to offer reliable services. A longstanding crypto broker more often has gained a good reputation from its users. You can research the existence of any scams and related customer issues via various reviews.
Crypto brokers associated with scams must be avoided as the risk of re-occurrence is often high. Some brokers have fund withdrawal delays that frustrate users despite claiming instant withdrawals. In your research, it is critical you identify genuine reviews as some manufactured reviews do not portray the actual reputation of the crypto broker.
Foundation and Management Team
One of the bases for judging the soundness of a company or project is its team. Crypto brokers are no different as the founding and management team influences the confidence in its traders. Crypto brokers should showcase their team and include verifiable information. Executives with a strong financial background tend to have a higher probability of running the firm more efficiently. Though nothing is for certain, of course.
A strong team is more likely to be transparent in their dealings and offer excellent support. Efficient customer support is often detailed in live chats and provides emails and phone support for quick and responsive feedback.
Summing it up
As you can see, there are a variety of factors to take into consideration when going the broker route. For beginners, we tend to recommend signing up with a platform like Coinbase or Wirex. For intermediate crypto enthusiasts that want to trade, an exchange is preferred. For the experts, a broker is most suitable. You can also learn how to find the most trustworthy crypto exchange in the linked post.
Disclaimer: Crypto is extremely volatile and not suitable for everyone to invest in. Never speculate with money that you cannot afford to lose. The information on this site is presented for educational purposes only and should not be construed as investment or financial advice.
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