How to Trade Bitcoin CFDs

Brandie E Blackler
20 Min read

Have you incorporated Bitcoin CFDs into your trading plan? Learning how to trade Bitcoin CFDs is certainly a topic that has been on the minds of many traders alike. 

Given the incredible amount of volatility in the price of Bitcoin, this poses potential options for retail traders (as well as, naturally, a risk factor that must be considered).  

Let us explain to you in detail how to trade Bitcoin CFDs in any market condition, and see if Bitcoin and other crypto CFDs have a place in your portfolio. 

As the old saying goes: Risk can bring reward. How you manage such is key.  

Trade Bitcoin CFDs: An Introduction

Taking into consideration that Bitcoin and other cryptocurrencies have increased in both use and value in recent years, it's only natural to pay attention to this in your trading activity.  

While there are many factors that affect the price fluctuations, it is important to also consider the historical analysis of Bitcoin's price and what strategies should be in place.  

Over the last decade, one of the biggest and most elusive questions within the world of finance (and the world as a whole) has remained: What is Bitcoin?  

The invention of Bitcoin dating back to 2010 has since sparked plenty of controversies; the concept of decentralized currency has caused both stirs and hopes amongst people and institutions all over the globe.  

Now, in 2022, Bitcoin has become quite established in the everyday world and dare we say, somewhat normalized in concept, thanks to blockchain technology.  

While there are certainly many opinions on Bitcoin, it is reasonable to say from an unbiased perspective that cryptocurrency is likely here for the long haul.  

If you've been following the world of digital currency, which is volatile in itself, you may be aware of a few important facts regarding Bitcoin, the front runner of all cryptocurrencies.  

Aside from it being the very first and most established, an important factor to consider in regards to its price evaluation (and consequential price fluctuations) is that there will only, ever, be 21 million Bitcoin in total existence.  

If we take it back to basics for a moment, we can make a general rationale that limited supply generally causes increased demand, which naturally causes the price to rise.  

Bitcoin, and the topic of how to trade Bitcoin CFDs, is not quite that simple nor black or white, however, it is an important and basic factor to consider when you form an opinion on Bitcoin's long-term potential.  

And for the short term? Both perspectives are indeed important, however, when learning how to trade Bitcoin CFDs, the short-term timeframes can be an effective strategy.  

Contracts for Difference (CFDs) are complex financial derivative products where the trader is speculating on the price change of an asset – whether it rises or decreases.  

Applying the technical analysis to assist with short-term trade setups is an option regarding your strategy.  

Before we have a look at any specific bitcoin CFD trading strategies and their associated market signals, let's review other important aspects connected to both bitcoin and cryptocurrency, as a whole.  

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What Influences Bitcoin's Volatility? 

Is there really a simple answer to "why is Bitcoin so volatile?" There are answers, yes. Is everything clean-cut and simple? Not quite.  

The history of Bitcoin's (and other cryptocurrencies) price shows nothing less than extreme volatility.  

As many traders and investors will agree, volatility can bring opportunity in the market, which must always be approached with an understanding of risk and your own defined risk management.  

Naturally, this is crucial to understand when learning how to trade Bitcoin CFDs.   

Bitcoin and the cryptocurrency market as a whole remain volatile due to various factors.  

Bitcoin is very much in what we can call a 'price discovery phase'; after 14 years in existence, it is making its place and purpose in the everyday world, more so each day – which we will revisit in more detail later on.    

Before we expand into the reasons for Bitcoin's volatility, it is notable to mention as a reminder that bitcoin and cryptocurrencies, in general, have no central bank to intervene in, hence decentralization.  

As with fiat currencies and currency pairs, there is no possibility to artificially subdue volatility (with cryptocurrencies).  

A good way to describe this, perhaps, is Bitcoin's volatility is thanks to a newfound market that is free from distortion. Established but the terminal value is still undefined.  

While Bitcoin and cryptocurrency remain a young asset class, it has been one of the best performing assets over the last decade. 

Before deciding whether to trade Bitcoin CFDs, it is a good idea to familiarise yourself with what factors affect Bitcoin's volatility. Below we will list some of the key factors.  

Media and News Events  

As with any financial asset, Bitcoin and hence Bitcoin CFDs experience a price fluctuation based on current events in the media. Naturally, this can go either way – up or down – as recent history has made clear.  

At this time of writing, in March 2022, the price of Bitcoin has been on a rapid decrease. This is perhaps the very best example to highlight when it comes to how much the media affects the price of financial assets, in this case, Bitcoin.  

Let this be a good point to reinstate that, if you choose to trade Bitcoin CFDs or crypto CFDs, this is something you must pay attention to and consider in your trading strategy.  

Consider this part of your fundamental analysis, which goes hand in hand with your technical analysis, in order to have an overall well-rounded CFD trading strategy.  

Government Regulation  

Over the last decade, which sums up more or less the lifecycle of Bitcoin, government regulation has been a very hot topic – as well as a volatile one, which irony is certainly not lost on.   

Many countries now consider Bitcoin to be a taxable asset. The US Commodity Futures Trading Commission (CFTC) announced back in 2015 that Bitcoin and its cryptocurrency counterparts would be considered a commodity. It also now has a place in the US derivatives market. Canada also views Bitcoin as a commodity, according to the Canada Revenue Agency (CRA).  

On September 7th, 2021, Bitcoin became legal tender in El Salvador – a move that is sure to bring interesting and volatile moves. 

As of March 2022, the European Union has started to create a legal framework for crypto-assets, which is arguably a benefit for the industry as a whole. 

There are still countries that consider Bitcoin and cryptocurrency illegal as of January 2022, including Nepal, Bangladesh, Egypt, China, Morocco, Algeria, Tunisia, Qatar, and Iraq. 

There will certainly always be opposing views on topics as controversial as cryptocurrency, but is this not just another tool to utilize when learning how to trade Bitcoin CFDs?  

Bitcoin's Future Perspectives  

Perhaps this is stating the obvious, but a major factor in Bitcoin's volatility is the uncertainty of future value cases.  

The intrinsic value is still unclear on whether it will remain both a store of value and an option for transferring value.  

Based on what we have seen in terms of development over the last decade, the outlook generally seems positive as to the future of Bitcoin and the certainty of its placement in the financial world.  

However, one must always keep a level of awareness of how quickly these aspects can change.  

As it remains a young asset class in traditional senses, awareness is key. This factor, like the others, does, however, also give a CFD trader yet another tool to use within your overall trading strategy; understanding and awareness alone make for the ability to form more solid trading decisions in a time of volatility.  

Lack of Liquidity  

Considering the topic of volatility, this goes more or less hand in hand when it comes to determining how liquid an asset is or isn’t.  

Bitcoin and cryptocurrency, in general, are certainly considered low liquidity assets; a major transaction made within the Bitcoin network or any crypto seriously affects the asset price, hence its volatility.   

A crucial point to also consider when determining liquidity is how easily the asset is exchanged for fiat and how stable the price remains when operating such an asset, in this case, Bitcoin.  

There is absolutely what we call slippage between the expected and executed rate when discussing a straight trade on Bitcoin's underlying asset, or exchange into fiat.   

Trading actual Bitcoin on any given exchange always incurs extra costs, however – said costs are often lower when opting to trade Bitcoin CFDs instead.  

Not only so, but it is also faster to complete the trade, in many senses more secure given the platform used, and actually a 'higher liquidity strategy' as you are not involving exchange and network fees, which are a crucial part of the low liquidity in the first place.  

If you are serious about learning how to trade Bitcoin CFDs, or trading crypto CFDs in general, this is such an important, if not the most important, takeaway – Crypto CFD trading in many ways increases the liquidity, hence partially stabilizing your trade and contributing to a portion of your risk management strategy from a fundamental perspective.   

See the live Monthly TradingView chart, below, to see in real-time the ongoing volatility: 

How to Trade Bitcoin CFDs 

Trading Bitcoin CFDs is probably not much different from trading any other currency pair, commodity or CFD showing a strong trend. The beauty of trading lies in its diversity, and through price action studies, traders aim to make profits that make them financially independent and stable. 

Trading strategies that utilise Bitcoin CFDs benefit from trading on margin, meaning that traders can open positions without having the full cost of the position in their account balance. This provides the possibility of magnified profits but must be used carefully, as trading on margin can just as easily magnify losses. 

Bitcoin CFD traders should be focused on: 

  • Riding the trend (uptrend until proven otherwise); 
  • Proper money management; 
  • The major sessions: London, New York, and Tokyo. 

Our MetaTrader 5 (MT5) platform offers cryptocurrency CFDs trading 24/7. It should also be mentioned that you should only trade Bitcoin CFDs with a regulated Forex & CFD broker, like Admirals.  

Trade Cryptocurrency CFDs With Admirals  

Are you ready to use your Bitcoin trading strategies in the growing cryptocurrency market? Admirals enable traders to trade 24 hours a day, 7 days a week with the BTC vs USD, EUR and crypto crosses, as well as the ability to go long or short on any cryptocurrency CFDs, with no actual crypto assets required for trading.  

Trade CFDs on BTCEUR, ETHEUR, BTCUSD, and many more with the leading platform, MetaTrader 5. Click the banner below to start trading:  

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Trade Bitcoin CFDs: Strategies 

Below, we will overview two potential Bitcoin CFD trading setups, which can be done via MetaTrader5:

Bitcoin CFD Scalping Strategy 

One option for trading Bitcoin CFDs is by using a scalping strategy in order to exploit volatility in short-term timeframes.  

Scalping the BTC/USD pair is performed using the MACD strategy (which is also covered in our Forex 101 course).  

Due to volatility and trend, this strategy may work for trading BTC/USD on shorter time frames, such as the M5 (5-minute timeframe). 

This strategy for trading BTC/USD uses 2 EMAs (Exponential Moving Averages), 34 and 55, 2 Stochastics that are overlaid (8,3,1 and 13,3,1), and a MACD indicator (34,89,34). 

This is how you can set it up on your chart:  

  • Open your 5m BTC/USD chart.  
  • Apply 34 and 55 EMAs. Both lines are Red in the MT5 WebTrader, however, you can hover over each line to decipher them. 
  • Add the MACD (34,89,34). 
  • Add the Stochastic Oscillator (8,3,1) and (13,3,1) overlaid in the same window. 

Depicted: Admirals MetaTrader 5 WebTrader, BTCUSD M5 Chart. Date Range: April 7, 2022. Accessed: April 7, 2022 - Please note: Past performance is not a reliable indicator of future results or future performance. 

  1. You buy BTC/USD when 34 EMA is higher than 55 EMA (hover on the MT5 trading screen in order to identify between the two EMAs).  
  2. The price needs to pull back towards the EMAs. Ideally, it should stop at the EMAs or pull back slightly below them.  
  3. The MACD is above 0. 
  4. Any of the Stochastics should be below 20 and pointed upwards (ideally, cross 20 from below). 

Bitcoin CFD Day Trading Strategy 

This Bitcoin CFD day trading strategy involves the MACD with the RSI and CCI indicators for intraday traders.    

The indicators for this strategy are used on an M30 (30-minute) timeframe:  

  • RSI – Relative Strength Indicator (10, apply to close)  
  • CCI – Commodity Channel Index (14, apply to typical price HLC/3)  
  • MACD – Moving Average Convergence Divergence (12,26,9)  

In this example strategy, there is the option to buy BTC/USD when the market signals are as follows:  

  • MACD>0  
  • RSI>50  
  • CCI>0  

Depicted: Admirals MetaTrader 5 WebTrader; BTCUSD M30 Chart. Date Range: 5 April 2020 - 3 April 2022. Accessed: 4 April 2022 - Please note: Past performance is not a reliable indicator of future results or future performance. 

** Please always remember never to trade with real capital which you cannot afford to lose. Trading in any market is never guaranteed and it is crucial to stick to your risk tolerance and risk management guidelines that make sense for you individually. 

You may consider registering first for a demo account with Admirals, where you can first practice any suggested strategies with virtual funds. Click the banner below to register today: 

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Trade Crypto CFDs vs. On The Exchange  

As crypto is still considered a 'young asset class', many traders may not even be aware of the potential to trade Bitcoin CFDs. 

In order for you to easily digest the differences between the two, we will summarize below the benefits which carry on when you choose to trade crypto CFDs vs on the exchange directly:  

Asset Remains More Stable  

As cryptocurrencies are considered to be of low liquidity, trading crypto CFDs in large moves (or any size of move) actually has no effect on the market itself (as it would if you were trading directly with Bitcoin).  

You are simply buying the contract for a difference in the current price, whether it be a Buy (predicting the price to rise) or Sell (predicting the price to decrease) order.  

On the other hand, owning the asset and trading cryptocurrency on the exchange can give more control to the trader and how that affects the market. This factor is always subjective depending on the amount traded. 

Option to Trade Bitcoin CFDs with Leverage  

If used correctly, with caution and utilizing your risk management, leverage can assist CFD traders. 

 Leverage is basically money borrowed from the broker to increase your position.   

For example, you open a $100 position on BTC/USD with 1:10 leverage added to it. That $100 original position is now $1000, due to leverage given by the broker.  

Now let's say BTC increases 50% - your position is now worth $1500. You close the position and Take Profit. Given your leverage of 1:10, you must repay the broker $900 and an extra $50 from the profit. Your end profit is $450 from $100.  

This is, of course, a very basic and optimistic scenario, but for the sake of explanation. Please make sure you understand what is leverage in trading and the risks associated with it before making any decisions.  

Trading cryptocurrency directly on the exchange gives you no option for leverage, which makes it less risky. 

The Security of Liquidity  

A CFD from a liquidity perspective is basically fiat; when you choose to close your position and Take Profit, the funds, whether it be US Dollar, Euro or otherwise, are returned back to your account.  

If you find yourself instead of trading bitcoin or cryptocurrencies on the exchanges directly with the asset, you must consider it is a long process to eventually extract your profit from the trade.  

It is also more costly and is a cause of 'slippage'. Exchanges are known for high fees, transactions are rarely immediate, and inevitably through this process, your profits are minimized.  

You are also often limited to how much you can withdraw from exchanges within a 24 hour period.  

On the opposing side, you also have the option to own the asset when you buy cryptocurrency from the exchange, as opposed to crypto CFDs. 

The Security of Assets  

Anyone who is relatively familiar with Bitcoin or the crypto industry has heard of security breaches within the network, as we have mentioned at the beginning of this article.  

Where the relevance lies here, in comparing the crypto-asset with the crypto CFD, is security is a much less worrying factor in regards to Bitcoin CFDs.  

Rarely is a CFD network to be hacked, whereas exchanges being hacked are, unfortunately, more common.  

The disadvantages of trading Bitcoin and crypto CFDs in comparison to the actual asset are considerably less.  

Some may argue they wish to own the actual crypto asset, which certainly has benefits, especially for the long term. But from a trading perspective, in hence the short term, it is not the most logical option.  

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Learn about the trading indicators, popular strategies, the latest news, trends and developments in the markets, and so much more Click the banner below to register: 

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Trade Crypto CFDs at Admirals  

As one may imagine, there are many options for trading digital currency pairs, both with fiat currency and paired with other digital currencies.  

The most common CFD pairing is with the US dollar – for example, BTC/USD. Admirals offer the option to trade various digital currency CFDs with EUR, as an alternative to USD, as well as trading with digital currency cross pairs.    

While Bitcoin has certainly maintained to be the most popular cryptocurrency to trade CFDs with, specifically the BTC/USD pairing, there are many more options to choose from as we've summarized.  

Admirals currently offer 40+ digital currency CFDs to trade with. 

It is notable to mention, that if you are new to trading CFDs, or are new to the world of digital currency pairings, make use of our demo trading account first.  

This way you can practice any strategy of interest without risking your capital. Once comfortable with your strategy or strategies, you can go in knowledgeably and trade with capital via a live account.  

Remember: Traders and investors of Admirals have a chance to utilize various trading tools with either a demo or live account. 

For example, MetaTrader 4 and MetaTrader 5 are thought to be crucial to any trader's journey, given the extensive implementation options within the charts, live real data options, and flexibility in the date ranges (among other things).  

View our account types and you can see in more detail information on trading instruments, leverage, currencies and much more.  

How to Trade Bitcoin CFDs: Conclusion  

Bitcoin and digital currency as a whole are certainly forces to be recognized in this new world of trading digital currencies.  

In whichever way you define your trading strategy, digital currency CFDs and more specifically, Bitcoin CFDs may be something you want to consider incorporating.  

A good trading takeaway to keep in mind – Massive retracements typically bring buying opportunities; given the mass number of retracements seen on the BTCUSD long term charts, this is good history to reflect on and learn from. 

How does the expression go? High risk, high reward. Like any stock, commodity or otherwise, Bitcoin and cryptocurrency are subject to price swings.  

The key to success and manageable risk is trading infrastructure, tools (like our trading platforms) and of course, risk management. Define your trading plan and stick to it.  

If you feel you're ready to trade on the live markets, Click the banner below to register for a live account, where you can trade using real capital:

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Can I Buy Bitcoin with CFDs?

Yes - You can speculate and hence trade on the rising and falling (Long or Short) of the Bitcoin price by purchasing and trading CFDs (Contracts for Difference). Please note, buying a Bitcoin CFD is not buying the underlying asset of Bitcoin itself, only the contract on the price direction (Buy or Sell).

Where Can I Buy Bitcoin CFDs?

If you're interested in buying and trading Bitcoin CFDs, you must do so via an online broker (such as Admirals). It is important to ensure that the broker is regulated in your jurisdiction, while it is also worthwhile to check the broker's TrustPilot score and reviews.

How Do Bitcoin CFDs Work?

When buying and trading Bitcoin CFDs, it is important to understand that you are not buying the underlying asset, Bitcoin in this case. You are not owning the actual digital asset. Instead, you are speculating on the price direction (with the goal of selling at a profit) via a contract with the broker.

 

INFORMATION ABOUT ANALYTICAL MATERIALS: 

The given data provides additional information regarding all analysis, estimates, prognosis, forecasts, market reviews, weekly outlooks or other similar assessments or information (hereinafter “Analysis”) published on the websites of Admiral Markets investment firms operating under the Admiral Markets and Admirals trademarks (hereinafter “Admirals”). Before making any investment decisions please pay close attention to the following: 

1. This is a marketing communication. The content is published for informative purposes only and is in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research. 

2. Any investment decision is made by each client alone whereas Admirals shall not be responsible for any loss or damage arising from any such decision, whether or not based on the content. 

3. With view to protecting the interests of our clients and the objectivity of the Analysis, Admirals has established relevant internal procedures for prevention and management of conflicts of interest. 

4. The Analysis is prepared by an independent analyst (hereinafter “Author”) based on Brandie E Blackler, Financial Writer and Analyst, personal estimations. 

5. Whilst every reasonable effort is taken to ensure that all sources of the content are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admirals does not guarantee the accuracy or completeness of any information contained within the Analysis. 

6. Any kind of past or modeled performance of financial instruments indicated within the content should not be construed as an express or implied promise, guarantee or implication by Admirals for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed. 

7. Leveraged products (including contracts for difference) are speculative in nature and may result in losses or profit. Before you start trading, please ensure that you fully understand the risks involved

 

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