If you look at the discussions in many forums dedicated to trading digital currencies, it becomes clear that many of their participants do not see the difference between crypto-exchanges and brokers. And this difference is very large.
First, unlike crypto-exchanges, most of which were created a year or two ago, many brokerage companies have a long history. And if a broker such as NordFX has ten years of experience in the financial markets and more than a million accounts opened by clients from almost a hundred countries, this gives certain guarantees of its reliability and speaks of its well-deserved positive reputation.
I must say that for many years brokers have managed to hone their methods of combating hackers. So, we regularly hear about hacking crypto-exchanges and embezzlement from the wallets of their clients, but about anything similar in relation to brokers so far no information has been received. Although their turnover is billions and tens of billions of dollars a month, and willing to profit at their expense – abound.
Until 2017 brokerage company mainly specialized in trading currencies on the Forex market, transactions with precious metals, stocks and futures. But an excessive rise of crypto-currencies in the past year forced them to pay attention to this market to which previously they were treated, tell the truth, with a certain disdain.
Having come to the crypto industry, brokers brought with them their trading Arsenal, which, according to its capabilities, it should be noted, is much higher than what the exchanges provide. We mention only three important points. This is: - the ability to earn both on the growth and the fall of cryptocurrencies – the ability to use a large leverage, reaching 1:1000, – and the ability to use a huge Toolkit for technical analysis and algotrading (automated trading).
And now let's focus on each of these points a little more.
CFD or how to make money on the collapse of the market
With how to make money on the growth of cryptocurrencies, it seems to be clear to everyone-bought a cue ball at $ 10,000, then sold at $20,000, and put 10 thousand profits in his pocket.
But how to make money in the falling market? In theory, in order to sell something, you need to have something. That is, to sell bitcoin, you need to buy it first. And here's a man goes to the exchange, buys bitcoin for $ 20,000, then, after the fall, in a panic sells it for $ 10,000 and... receives a loss of 10 thousand.
But that's only if he's trading on the stock exchange. The broker instead of a loss, and in the event of a market collapse, it can be in a serious plus. And all this thanks To contracts for difference-CFD (eng. Contract For Difference).
Like much else in the world of Finance, CFDs were invented in England about a quarter of a century ago. Initially, it was a deal to buy/sell shares, but without registration of ownership rights to them, which allowed to avoid payment of duties.
It is clear that such an "economical" method of trading quickly became very popular, as it allowed for a short time to get quite a decent profit. And soon, in addition to shares, CFDs began to be concluded on other assets – currencies, precious metals and commodities. And last year, thanks to brokers, cryptocurrencies also began to act as such assets. At the same time, as mentioned above, the actual transfer of coins from the seller to the buyer does not occur. This is what allows you to make a drop in prices.
Let's explain: the contract for difference in prices is somewhat similar to the bet you make with the broker, as to whether the price of the same bitcoin will rise or fall. At the same time, you choose the moment of the beginning of the bet, that is, the time of opening the transaction, and the time of its closure. And only you depend on its volume and how long it will last – one minute, one year or longer.
And if at the moment when the price of bitcoin has reached $ 20,000, you decide that it is the ceiling and then it will only fall, you can open a CFD transaction for its sale, closing which at $10,000, you will receive no longer a loss, but a profit of 50%. But this is not all, because, thanks to the leverage of 1: 1000, your profit can be not 50, but 50,000%!
Leverage: benefits and risks
For those who do not know (and there are many), let's explain: leverage is the amount of credit that automatically and without any collateral the broker provides to the trader to conclude transactions on the market.
In recent months, many brokers, afraid of high volatility, began to reduce leverage from 1:100 to 1: 3, or even completely abandon it. And at this time, the international broker NordFX has made literally a revolution in cryptoforge, offering its customers the leverage, exactly 1,000 times (!) in excess of their own funds. Thus, having only $100 on the account, for example, a trader can enter into transactions for the purchase/sale of cryptocurrency or other financial instruments in the amount of 1000 times higher than his own funds, that is, $100,000!
In case of success, in proportion to the shoulder will increase the profit of the trader. But so will the losses in case of failure. This is what divided traders into two camps. According to the first, a high leverage leads to an inevitable loss of the Deposit, and the second – it is an excellent tool for trading, which makes it possible not only to increase its profits several times, but also, on the contrary, to seriously reduce trading risks.
It should be clearly understood that leverage is just an option, a bonus that you can use completely, half, quarter, one-tenth or not to use at all. By itself, the amount of leverage does not influence the level of risk. Risk is managed by the trader, opening a position of a volume.
It's like driving a car. Theoretically, sitting in his yard, you can in a few seconds to disperse his steel horse to 100 or 150 km/h. But you turn on your head, and start moving carefully, assessing the possible risks. And when necessary and the situation on the road allows, you can drown the accelerator pedal to the floor.
Here is a very simple practical example:
Suppose you have allocated $1000 for trading on the exchange. At the current price of $10,000, for the money, without leverage, you can buy 0.1 bitcoin. (In reality, of course, you need to take into account the Commission of the financial intermediary). At the broker with a shoulder 1: 1000 to buy this 0.1 WT you need... just one dollar! And $999 out of your thousand you leave in stock in case you make a mistake and the price goes against you. In this case, having such an impressive reserve and using the method of averaging loss-making positions and buying coins at a better price, you have many times more chances to get out of the drawdown with a profit, rather than reset your Deposit. That is, the more leverage you have, the more free money you have. And the more available funds, the more opportunities to minimize and diversify risks and increase the profitability of your trade. You can do this by using several trading strategies, as well as hedging risks, filling your investment portfolio with not only a variety of cryptocurrencies – Ethereum, ripple, litecoin, etc., but also ordinary currencies like the dollar, Euro or yen, as well as precious metals – gold or silver. And, recall, depending on the situation, you can open a transaction for their purchase and sale. And even to buy and sell simultaneously in order to close losing positions and keep profitable.
So, let's repeat: leverage is just a tool, and how to use it depends solely on the trader, his or her skills... financial appetites (in other words, greed).
MetaTrader 4: many advantages, large and different
Just above we started talking about trading strategies and the professional skill of the trader. And here it is necessary to say that for trading many brokers, such as NordFX, offer to use the world's most popular platform MT4 (MetaTrader 4).
Why is it so popular? Yes, because with its simplicity and convenience, this platform provides the trader with excellent opportunities for technical analysis in the form of a huge number of indicators and graphical tools. It can also be used to copy trades of more experienced traders and market professionals. In addition, for MT4 written many trading algorithms on the basis of which created thousands of robots-advisers to trade fully automatically, without spending forces, time and nerves on many hours of vigil at computer monitors.
Perhaps, all of the above sounds a little difficult for those who are used to just buy bitcoins and altcoins based on their growth. But, believe me, and CFD, leverage up to 1:1000, and hedging, and technical analysis and algorithmic trading will greatly enhance your opportunities. And if you do not believe, you have only one thing – to open a broker trading account and check it all yourself. Moreover, in NordFX this procedure takes only a few minutes, and you can top up your account and withdraw profits from it not only in dollars, but also in bitcoins and Ethereum.