Beginner

CFD explainer: Crypto CFDs vs Crypto exchange

When it comes to Cryptocurrencies, traders have the option to buy and hold physical coins via a Crypto exchange and store the coins using a digital or physical hardware wallet. Alternatively, they can trade Cryptocurrencies using CFDs. Both ways have their own unique advantages, however it’s important to note that only CFDs allow traders to enter both long and short positions when it comes to Cryptocurrencies, and allow the flexibility to use leverage, while never having to own the actual coins in a wallet. Understanding these differences will help you make more informed trading decisions.

Here’s a snapshot of the differences between Cryptocurrency CFDs vs Cryptocurrency Exchange.


What is Crypto CFDs

  • Increased flexibility – traders can trade long or short, meaning they can express a view on cryptocurrency if the price is rising or falling
  • Timeframe – the duration of hold times of crypto CFDs are typically shorter-term and traders are often more active in taking positions
  • Leverage - Crypto CFDs offer leverage, meaning you put down a percentage of notional value as ‘margin’ for the full notional value
  • Overnight funding costs – traders will pay or receive a holding/funding cost for each day the position is held past a rollover point
  • Efficiency – with Crypto CFDs the trader’s capital is held with the broker, so there is no need to have money in a cryptocurrency wallet – it’s impossible to hack a crypto CFD position.
  • Smooth transactions - Traders can trade crypto CFDs with their capital in the account and without having to first exchange for stable coins
  • Regulation - CFD Brokers like Pepperstone are regulated in multiple jurisdictions, meaning that traders enjoy a series of investor protection rights, under the local regulatory framework
  • Longevity – Many CFD brokers such as Pepperstone have been in business for well over 10 years, meaning they are true specialists in retail trading products

Crypto Exchange

Now let’s look at crypto exchanges

  • Complete product range – with over 18,000 coins many of these are available at various crypto exchanges. By comparison, Pepperstone’s CFD range is less extensive although we offer the major coins traders gravitate to that are liquid.
  • Duration of hold time - Participants often hold for longer periods or “HODL” as they say.
  • Leverage- Crypto is offered without leverage and investors can only buy to open meaning no short selling
  • Limited regulation - This is an evolving situation but many expect increased levels of investor protections and higher barriers to tax aversion and money laundering. Access to the evolving
  • Defi space – this includes yield farming, Web 3 protocols, NFT and decentralised Apps known as DAPPS
  • Lower fees - Transaction fees on a centralised exchange to purchase crypto can often be lower however there can be additional costs such as gas fees, slippage and spread when transacting on a decentralised exchange.

To see if trading Crypto CFDs works for you, visit the Pepperstone website for more information on making the right choice for your circumstances or try our demo.

Learn more about trading CFDS

Here at Pepperstone, our customers love the product range along with the low cost to trade and the fact so many markets are open around the clock. Interested? Watch the more videos to learn or speak to our team about whether CFDs are right for you.