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Like any financial assets in the world, crypto trading is offered by many platforms. In this article, we will explore cryptocurrency or Bitcoin CFD trading, which is one of the popular methods of trading cryptocurrencies.
Ask Price: The price at which a trader can buy CFD.
Bid Price: The price at which a trader can sell CFD.
Margin: Margin is a certain percentage of the money you need to pay to open a trade. For example, if the margin requirement is 20% and you’re placing a trade worth $2,000, you’d need to deposit $400.
Leverage: Leverage is a trading tool that allows you to buy and sell CFDs with more capital than you own. So, you only need to deposit a certain percentage of the full value of the trade to open a position. For example, you bought 100 shares by paying $10/share for $1000. If the leverage ratio is 6:1, your assets worth magnifies to $6000 instead of the original $1000.
Stop loss. Stop-loss order is a trading tool that lets you set a price level at which you want your CFD position to close. It is a security feature that allows you to minimize your losses if the market moves against you.
Limit: Limit order lets you set the price level at which your position will be closed so that you can get any profit before the market moves against you.
Let’s take an example to understand where all these terms fit in the context of CFD. Imagine Bitcoin with a bid price of $27.59, and ask price of $27.60.
You think that the price of Bitcoin (BTC) will go up, so you decided to go long (buy low sell high) with 2000 CFDs at $27.60. It is the equivalent of buying 2000 BTCs.
If Bitcoin has a margin factor of 5%, then your margin would be 5% of the total exposure of your trade (2000 CFDs x $27.59 = $55,180), which is $2759.