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Hello ALTALLIES Community!

Thank you for joining us. This installment we will cover the term ‘CFD’, which is an acronym for ‘Contract-for-Difference’. A CFD refers to a financial asset which is not available for physical delivery. CFD’s are usually derivatives products where transactions are leveraged using margin, which we looked at previously. This means that funds placed as collateral, referred to as margin can be utilized to buy or sell much greater amounts of the underlying asset. In the case of FX, which is leveraged usually at 1:100 (100 times the value of the margin held with the broker) a margin of say, USD1,000 can be used to buy USD100,000 of USDJPY for example.

As mentioned above, CFD’s are not deliverable and are the difference in the value of the initial open position and closing position are posted to the trader’s account as a profit or loss.

On a crypto exchange, BTC for example is purchased or sold at 1:1 (no leverage applied) and the BTC is deliverable to the trader’s wallet. Recently, there have emerged a few traditional FX brokers who also provide trading services in CFD Cryptos, especially the more liquid currencies such as BTC, ETH, Ripple, etc.

We believe Crypto CFD’s will gain popularity as a useful instrument to make speculative trades in the market and benefit from the leverage available. Currently, leverage for Crypto CFD’s is lower than FX at around 1:10. However, as market participants increase with varied interest to buy and sell greater liquidity should lead to higher levels of leverage.

Hope this was informative and please tune in again next week!

ALTALLIES Team

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