Bitcoin is a Cryptocurrency that serves as a decentralized peer to peer payment system.
Bitcoin, which serves as a digital Currency of exchange, is usually distributed through mining operations. The process of mining usually involves making use of a specially designed set of hardware and software tools.
Since mining operation requires some technical level of expertise and it also could be really capital intensive in terms of tools needed and electricity consumed, mining of Cryptocurrency is now best reserved to some specific set of people who can afford the tools needed and are experts on blockchain technology.
However, since not everyone has access to mining tools or even interested in getting free Bitcoin from owning their own mining rings and pool, there needs to be another way to get Bitcoin which brings us to what we call Bitcoin trading.
What is bitcoin normal trading?
Bitcoin trading is basically the buying selling of Bitcoin.
Just like any financial instrument, Bitcoin has grown significantly to become a trade able asset across various platforms dedicated to cryptocurrency. Bitcoin trading involves two sets of people, which are the buyer and seller. The bitcoin seller during a normal Bitcoin trade must already pre-own some amount of bitcoin either from mining or from having purchased the bitcoins from someone else.
In some cases, the platform acts as the buyer and also the seller simultaneously, while on other platforms buyer and sellers of bitcoin are connected and can easily meet up on the platform to exchange bitcoins for other Cryptocurrency or in some cases FIAT currency like USD, EUR, or JPY.
In these cases, the function of the platform is to link the buyers and seller together and their only gain is from transactional fees recorded during the exchange of this Bitcoin.
This process of buyer and sellers of actually bitcoin token being exchanged is what is known as the actual normal bitcoin trading. For those who are already used to the idea of trading financial instrument making use of brokers and trading institutes, there is another way to get involved in buying or selling of bitcoin known as CFDs.
What is Bitcoin CFD trading?
CFDs trading can be simply defined as the process of making a contract on the future possible price of any particular trading asset or instrument. You can easily learn more about the phenomenon by reading this article about CFDs.
When trading CFDs, it means, you get to make a long trade contract (BID) if you believe the price of an asset is going to rise while you short(ASK) an asset if you believe the price is going to dip. Translating bitcoin as the asset contract being bought or sold would perfectly define what a Bitcoin CFDs means.
In this type of trading, you do not trade the actual on the actual asset so the value of the asset is not your problem, what you care about is the direction the asset would be taking ones you make a trade on it.
Why is there a Bitcoin CFD?
Bitcoin CFDs is similar to other type of CFDs trading, which means your trade is carried by a broker who helps to connect your trades with market liquidity provider pools and provide you with quote of price the liquidity provider is willing to sell or buy your contract, inclusive of the spread or commission being charged by the broker itself.
Trading bitcoin normally, usually involves various steps and might require you having to learn some totally new terms or might just be very difficult for you to bring all you have learned over the years trading other types of instrument using CFDs brokers, so the need for CFDs broker to add Bitcoin to the list of assets available for trading.
Difference between Bitcoin CFDs trading and normal trading
Bitcoin CFDs trading does not give the right to the underlying asset class. This means you are only buying a contract based on the price of bitcoin while actual bitcoin trading means you are buying or selling real Bitcoin token with real market values. Also when it comes to CFDs Bitcoin trading you can make use of leverage to increase your trading power, while in normal Bitcoin trading you only buy or sell what you have in your wallet no more no less.
CFDs Bitcoin trading requires you to register an account with a CFDs broker who helps to connect your trade to the market, while in Normal bitcoin trading you can easily sell or buy bitcoin without making use of a third-party application. Another important difference between the two form Bitcoin trading is that you most likely need to submit personal information documents such as ID card to use most CFDs broker effectively, to own, buy or sell Bitcoin you do not always need to submit any document to your buyer or seller. This makes normal Bitcoin trading more anonymous and decentralized.
Which type of bitcoin trading is the best?
Picking the best of bitcoin trading for you boils down to the kind of trader you are. If you previously have experience making use of CFDs broker, then you should probably stick to trading your Bitcoin via the CFDs approach. The only downside to this is that you don’t own Bitcoin token that you can use to purchase goods or services. If you are just starting out in the Cryptocurrency race, then the perfect method of bitcoin trading for you is to make use of normal bitcoin exchanges and wallet platforms to buy or sell bitcoins.
In Conclusion
Different trading methods have their advantages and disadvantages. As a result of this, it is usually advised that you make use of both methods if you can afford to, or better still just stick to normal method of bitcoin trading which is straightforward ones you get the hang of it.
Bitcoin trading has a steep learning curve and you may want to research extensively before you get involved in any form of trading. The high volatility also means that trading in cryptos is a risk and you should be prepared to make losses.
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