Axie Infinity is one of the popular blockchain-based play-to-earn (P2E) games, and Axie Infinity Shards (AXS) are among the tokens used in its ecosystem. AXS is among the token that provides different investment opportunities through trading.

Some people opt to buy the token itself and hold to sell when the price increases. However, this approach often works best with long-term investors and requires large initial capital to make good profits over time. What if you have little capital and want to take advantage of frequent AXS price changes? Trading AXS CFD is the best way to go about it. Keep reading because this post discusses everything about AXS CFDs.

What are CFDs?

A CFD stands for "Contract for Difference". It's a financial product that allows you to trade on underlying assets without owning them. CFDs allow you to speculate on the price movement of assets like cryptocurrencies, forex, stocks, commodities, and indices. Largely, you only trade the price and not the actual asset.

So, what exactly are crypto CFDs like AXS? They operate the same way as other types of CFDs, where you profit from correctly predicting price moves. Additionally, with AXS CFDs, you open trades on bullish or bearish markets, depending on your analysis.

Another aspect of AXS CFDs is that brokers who offer this financial instrument enable access to leverage trading. Why does it matter anyway? With leverage, you only need small deposits to open big positions, which amplifies your profits. However, it could also magnify your losses. For that reason, it's crucial to understand how leverage works before you engage in CFD trading.

Why Trade AXS through CFDs?

1. Ability to open buy and sell trades

Suppose you're trading the AXS on an exchange, you can only buy, and you're limited to short selling. However, with CFDs, you open positions in either direction of the AXS market and make profits when your prediction plays out right. Therefore, you have the flexibility to capitalize on trading opportunities on any type of market fluctuations.

2. Access to leverage

Most CFD brokers globally offer traders leverage on AXS CFDs of 10:1, 20:1, 30:1, or higher. It means you don't have to commit 100% of your capital to open a trade; only a fraction of your capital (something like 5%) is needed to open big positions in the market. Consequently, trading using leverage can increase your potential profit margins. However, this approach could also amplify your losses; thus, you must choose a leverage that suits you.

3. Potential for massive price moves

Since most traders can access AXS CFDs with leverage and short sell, CFD prices can sometimes be more volatile than the underlying asset alone. Most traders find such periods to present great opportunities to enter and exit positions. However, in case of extreme volatility, you ought to trade with much caution and apply proper risk management to mitigate potential losses which can occur pretty quickly.

4. Flexible trading

Some markets like ETF and Spot trading can be rigid, thus limiting how you can trade. On the other hand, CFDs provide you with the flexibility to place stop losses and take profits when and where desired. Additionally, you determine the amount of risk you wish to take per trade or position. With all of these, it's easy to speculate and make profits.

5. Trade in a better-regulated environment

Trading real cryptocurrencies is much riskier than trading their CFDs on a brokerage account. In most countries, CFD brokers are regulated by relevant regulatory agencies/ authorities, which protects traders' money to some level. For instance, the recent FTX collapse incident saw millions of investors lose their actual coins in their crypto wallets worth about $8 billion.

Risks of CFD Trading

As stated above, trading CFD involves risks like any other investment. Here are five risks and possible solutions you should be aware of when trading AXS CFDs:

1. High leverage quickly amplifies losses

Leverage is a double-edged sword, and how you use it greatly matters. The way it amplifies your gains when your analysis is correct, it's the same way it could amplify your risk of loss when you're wrong. Now, supposing you choose incredibly high leverage, it could very quickly contribute to materializing of a substantial loss in one or a few trades that are moving against your prediction.

A possible solution

If you're a beginner, you may opt to remain conservative and choose lower-level leverage like 10:1 or less, as you learn more. For intermediate and experienced traders, it's essential you assess your risk appetite and choose leverage you're comfortable with. Most importantly, understand the amount of capital you risk in each position you take.

2. Vulnerability to margin calls

A massive loss could easily lead to the liquidation of your positions if your margin gets below the required level. However, before the actual liquidation occurs, you'll automatically get a margin call from your broker asking you to add funds to meet the minimum margin requirement to keep your positions open.

Some of the key causes of margin calls include:

  • Over-leveraging your account
  • Holding on to a losing trade for long or adding to a losing position until you deplete usable margin on your account.
  • Trading without stops and price moves aggressively against your trade.

A possible solution

As you can see, the margin calls depend solely on your decision while entering a trade. The most effective way to avoid margin calls boils down to proper risk management and using reasonable leverage. For instance, determine your entry and exit levels before entering a trade. Secondly, decide what percentages of capital you wish to expose to the market on each trade. More importantly, use stops to cut losses, especially when there is extreme volatility.

3. Fees reduce profits

Trading CFDs attract a lower commission compared to trading the actual assets. However, CFD brokers charge traders for spreads on entry and exit positions. Also, some brokers charge a commission fee on positions left open overnight. As a result, when a trader takes full account of such fees, it affects profitability in the long run.

A possible solution

The first step to avoiding the extremely high cost of trading AXS CFDs is choosing a broker like VSTAR who offers low spreads and fees. More importantly, choose a broker with more transparent pricing.

4. Speculation only

The reality of CFD trading is that you focus on speculating short-term price changes and capitalizing on that. There are no opportunities like staking rewards attached to the CFD positions. In brief, you entirely count on price speculation to generate profits.

A possible solution

You should consider diversifying your investment to increase opportunities to make profits through CFD trading. You could opt to buy some AXS tokens, which could potentially generate you extra income through staking. You could also trade CFDs of other cryptocurrencies like ETH, BTC, FIL, DOGE, etc.

5. Counterparty risk

In CFD trading, you get into a contract with your chosen brokers. Therefore, you depend on that broker to pay you when you make profits. If your broker's financial state isn't okay or they go bankrupt, your funds are at risk. There is also the risk that your broker could default on your withdrawals.

A possible solution

First, choose a reputable and regulated broker. Then you could consider diversifying your trading capital/funds across multiple brokers when possible. It's also vital you read and understand the agreement from the CFD provider before opening a live trading account and executing trades.

Bottom line

CFDs allow experienced traders to speculate on the price of AXS on a rising and falling market. The good part is that you can trade AXS CFDs through leverage which could help you keep most of your profits when your analysis is correct.

CFD trading poses some risks; therefore, you need to practice good money and risk management. For instance, only risk what you can afford to lose and understand how leverage works. Notably, technical analysis is of the essence in AXS CFD trading to help identify trading opportunities, especially in volatile market conditions. Also, before you start trading, understand there are fees involved and consider settling on a broker with minimal trading fees and commissions.

Lastly, CFD trading provides more flexibility but with a significantly higher risk than spot trading (buying and holding AXS). Also, you entirely depend on speculation, but you could speculate on a wide range of crypto CFDs when AXS CFD doesn't present trading opportunities.

*Disclaimer: The content of this article is for learning purposes only and does not represent the official position of VSTAR, nor can it be used as investment advice.