Crypto CFD vs ETF

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Hi friends, good to have you here again. Well I have no doubt that you have missed me so much, trust me the feeling is mutual. I've been unavoidably absent to fix some personal stuff off chain...but thank God am back to pick up from where we left off.

Our last discussion was centered on CFD, we defined it, talked about it pros and cons and some other important aspect of CFD. Today I would love to do a comparison between CFD and ETF. These two are distinct even though they have some underlying similarities...my focus today is on the difference. Let's get into it guys.

Comparing CFD with ETF

In this session I would be highlighting the major features that distinguishes crypto CFD's from ETF. Meanwhile I hope we have not forgotten the definition of CFD just as captured in my previous post. Well if you have, I would just help out by dropping an excerpt here...

CFD which means Contract for Difference is a class of derivative that gives room for traders to predict price movement and profit without actually owning those asset he is looking to benefits from. It has some similarities with the normal futures trading styles but then there is a slight difference to it.
A trader typically earns from the difference between the opening and closing price of an asset.

The above was adapted from my previous post Understanding CFD. Now that we know what crypto CFD's are, I would like to briefly define ETF. Hopefully I should dedicate a full post to talk extensively about crypto ETF.

Crypto ETF which is written in full as Exchange Traded fund are specially designed to track the performance of one or more cryptocurrency which are also referred to as underlying assets. This gives investors, I mean traditional investors the privilege of having an exposure (indirectly) to crypto without owning the underlying crypto asset.

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They have the privilege of buying and selling shares of the ETF on a typical traditional exchange which of course is regulated. It's important to note that Crypto ETF tracks crypto assets like Bitcoin, which of is one of the most prominent crypto ETF, Ethereum could also be tracked and a host of other crypto assets. When these assets do well, investors benefit from their performance.

Now that we have explored both term and how they work, Let's us now go straight into the key difference using the point I will be highlighting below.

• Ownership: CFD are derivative contract, this means an investor do not really own them or have them in possession, they only trade them to get their profit while ETF on the other hand gives investors the privilege to own assets tracking the performance of an underlying asset. They benefit or gain profit when the underlying asset appreciate.

• Trading Flexibility:In terms of flexibility, crypto CFD give the best and we can measure this from the stand point of leverage, trading position such as long and shot etc. With CFD, you do not have to hold and asset let alone holding it for long, hence the reason its called a contract.

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You could make profit from shorting (selling) and also from longing (buying) using leverage to your advantage. But when dealing with crypto ETF, there is a limit to what you can do here. The best you do here is holding it for a long term to enjoy profit when the price of it underlying asset appreciate.

• Market Availability:Availability of the market is another consideration, Crypto CFD runs all round the clock, I mean 24/7. You can walk in anytime to take a trade either buy or sell and exit the market at will but when it comes to ETF's it operate in line with the traditional market that has an opening and closing time. It therefore means you're restricted to those times.

• Regulation:ETF's are strongly regulated by financial regulatory bodies, they control it affairs and set the rules governing it operations. but when it comes to CFD, they are less regulated when compared to ETF. This in it self seem like and advantage but then it also a double edged sword because when something lack regulation, it not very safe, it considered as something risky...for traders and investors.

• Transaction Cost:When it comes to cost, CFD are more economical as you do not have to factor in costs like custodial fee, management fee and other related expenses that comes with ETF. All these cost stem out from holding the asset. Whereas in crypto CFD, you do not hold the asset, they are just some futuristic contracts

Bottom Line

I believe by now you have a very good knowledge of what contract for Difference (CFD) means coupled with it advantages and risk. Having learnt all of this, one need to be careful so he doesn't shoot himself in the leg.

There you go friends.I would love to wrap it up at this juncture. I want to believe you've gotten so much from this piece. As my usual custom is, I would always encourage that you DYOR to be sure of every financial step you would want to take as I won't be liable for any form of loss encountered by you.

Feel free to share with me your thoughts in the comment section. Thanks for your time once again. Gracias!

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^{Disclaimer: This post is made as an education and not investment advice. Digital asset prices are subject to change. All forms of crypto investment have a high risk. I am not a financial advisor, before jumping to any conclusions in this matter please do your own research and consult a financial advisor.}

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Regards
@lhorgic♥️

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