Cryptocurrency Exchange Or CFD Broker? Which Is Better?

Last Updated August 15th 2019
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If you’re interested in cryptocurrency trading, then it is likely that you have wondered where is the best place to trade it.

Essentially, there are two primary options; a cryptocurrency exchange or a CFD broker.

The two are quite different in several ways and what suits one trader may not suit another.

By understanding how the two differ, you can make a more informed decision when you decide to start trading cryptocurrency.

Owning the asset

owning asset, hand holding bitcooin

This really comes down to preference.

If you want to physically own the cryptocurrency, then a cryptocurrency exchange is for you.

However, it should be mentioned that if you do seek to own the cryptocurrency, never leave it in the exchange, always withdraw your crypto and place it in your wallet.

This is always recommended because cryptocurrency exchanges are known to get hacked and traders’ cryptocurrency can be stolen. It will be safe in your wallet where only you can access it.

CFDs are very different. CFD stands for ‘Contract for Difference and is technically what you are trading, not the cryptocurrency itself.

It is basically an agreement between you and the broker to buy the underlying asset, in this case, cryptocurrency, at a certain price.

With a CFD, you never actually own the cryptocurrency. This can be seen as safer as it is less likely that things will go wrong, such as the cryptocurrency being stolen.

This can also be beneficial because it is not necessary for you to learn how to store cryptocurrency as well.

Cryptocurrency exchanges and wallets can be difficult to learn how to navigate. If you trade cryptocurrency as a Contract for Difference, you just need to know how to trade it.

Regulation

This is perhaps one of the biggest issues when it comes to trading on a cryptocurrency exchange or with a CFD broker.

As you probably know, cryptocurrency regulation has not yet caught up with cryptocurrency itself. Regulation in most countries is still being put together or is ambiguous.

Because of this, most cryptocurrency exchanges are not regulated by any regulatory body.

CFD brokers in most cases are regulated and are a lot safer to trade on because of this.

If something goes wrong, such as your funds being stolen, a CFD broker will be required to compensate you for what was taken.

Nothing like this is currently in place for cryptocurrency exchanges and so if your account is hacked, you probably will not be compensated for what was taken.

CFD brokers are also more likely to segregate funds. This is where clients’ funds are not all mixed together.

What most CFD brokers do is separate them into different bank accounts where they are protected.

This also makes withdrawing your funds easier.

Trading times

trading times, cryptocurrency exchange, bitcoin and price graph

Most cryptocurrency exchanges are open all day every day. CFD brokers can sometimes be closed on weekends or may operate at certain hours in certain time zones.

Being open more frequently offers more availability. If something important happens outside regular trading hours, with a cryptocurrency exchange, you will be able to take advantage of it.

Trading platforms

With a CFD broker, you will have a better selection of platforms to trade with and a much wider choice of indicators.

Cryptocurrency exchanges tend to be very limited in what they can offer traders in terms of trading platforms and useful tools and indicators.

They may lack standard tools like stop-loss orders and take profit orders which can be vital when trading cryptocurrency where violent swings in price occur regularly.

Speed

CFD brokers are much faster to buy or sell with as you never own the underlying asset.

When you trade with a cryptocurrency exchange, the process takes longer as it must be put through the blockchain and verified.

By the time you finally buy or sell the cryptocurrency, you may have missed the price you wanted, missing out on any highs or lows. In the worst-case scenario, you may have even lost money.

This is also important because precision is vital to meeting your trading goals

In order to be a successful trader, you need to strive for consistency and if you are trading via a cryptocurrency exchange, it can be much harder to be consistent and build profits over time.

Leverage

leverage

Most CFD brokers offer leverage while this is not something at all guaranteed by cryptocurrency exchanges. Plus, CFD brokers usually offer much higher leverage than cryptocurrency exchanges as well.

That said, CFD traders should be very cautious when applying leverage. Ideally, only very experienced traders should use it.

Remember that what you borrow must be paid back, even if you make a loss.

Selection

Cryptocurrency exchanges offer a much wider selection of cryptocurrency to trade.

It is worth asking yourself though; do you really need a selection of thousands of cryptocurrencies to trade?

Most of which will be unknown to you and you will not know what their value is. 

It is likely you will stick to trading just a handful of the most well-known cryptocurrencies which you will probably find with a normal CFD broker.

Similar in a sense to trading forex where most CFD traders stick to trading major and minor currency pairs.

Perhaps more importantly though, by trading with a CFD broker, you won’t just be limited to cryptocurrency. You will also be able to trade stocks, forex, commodities and a lot more.

This allows you to diversify your portfolio and reduce risk when the cryptocurrency market is down, plus keep trading and bringing in money by focusing your efforts elsewhere.

Spreads

spreads, cryptocurrency trading

CFD brokers often have high spreads on cryptocurrency trading while cryptocurrency exchanges often have lower spreads.

However, you also need to take into consideration commission fees which cryptocurrency exchanges and CFD brokers may apply and may be different depending on the size of the trade.

One fee that may become problematic for long-term CFD traders is swap fees, which is where you hold a position overnight.

Either way, whichever option you choose, you should be aware of the different fees and commissions that may be charged on top of your trades.

Pricing

Both CFD brokers and cryptocurrency exchanges can be subject to incorrect or artificial pricing.

CFD brokers can be market makers, which is where they make the prices themselves and they are not wholly influenced by real market prices.

To trade in real market conditions, CFD traders should look for ECN, STP or DMA brokers

Trading in such environments means there will be more fluctuations in price to take advantage of. However, this can also mean more risk as well.

Cryptocurrency exchanges are also susceptible to artificial pricing as well. Again, they may differ significantly from one exchange to another.

It is worth mentioning that some traders seek to take advantage of this by performing cryptocurrency arbitrage, which is where they buy in one exchange and sell in another to make a profit.

Customer services

A very important difference between CFD brokers and cryptocurrency exchanges is that CFD brokers have existed for much longer. In some cases, CFD brokers actually outdate Contract for Difference themselves.

Cryptocurrency exchanges have only existed at the most a few years. 

This is reflected in customer services. CFD brokers tend to offer better customer services than cryptocurrency exchanges.

With a cryptocurrency exchange, be prepared to be left on hold for a long time or have your issues unresolved.

It should be mentioned though, that CFD brokers’ customer services may not work on weekends or after working hours and so you may not be able to contact them.

Educational materials

Many cryptocurrency exchanges do not offer much in terms of educational materials and are not too user-friendly to beginners.

CFD brokers tend to have a good deal of educational materials on their websites and cater to both beginners and experienced traders. It won’t be as much of a learning curve.

Which one should you choose?

cryptocurrency exchange or cfd broker, man choosing between two ways

Cryptocurrency exchanges are still catching up with CFD brokers and are generally relatively young in comparison.

Over time, cryptocurrency exchanges may start reaching the same level of user experience CFD brokers offer, but until that happens, CFD brokers win in several areas.

In the end, it is entirely down to your preferences. You may find that one suits your trading style more than the other.

Many would regard using a CFD broker as a wiser choice as it offers traders better security and they offer platforms that are more designed for trading.

That said, cryptocurrency exchanges may be better for those who actually want to own the cryptocurrency they are trading, particularly if they are crypto enthusiasts.

However you decide to proceed, make sure you research the cryptocurrency exchange or CFD broker you want to trade with thoroughly.

Ideally, you want a CFD broker or cryptocurrency exchange that doesn’t artificially change the price and one you can trust.

Key points

If you remember anything from this article, make it these key points.

  • With a Contract for Difference broker, you do not own the asset. With a cryptocurrency exchange, you can own the asset and keep it.
  • Regulation is yet to catch up with cryptocurrency exchanges. They are much less likely to be regulated than CFD brokers.
  • Trading with a CFD trader is much faster. Trading with a cryptocurrency exchange can be more complicated.
  • Cryptocurrency exchanges offer a wider selection to trade from. CFD brokers are more likely to only offer the top traded cryptocurrencies.

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