CFD vs Forex – Learn about their Differences
Do you know what the difference is between CFDs and Forex?
We explain the similarities and differences between the two in a short video in order to help you choose the type of trading that suits you the most.
Similarities of CFDs and Forex
There are many similarities between the two trading methods. The same trade execution process is involved in both types of trading. Both rising and falling markets make it easy for traders to enter or exit. Both trades are executed on the same platform, using the same looking charts and pricing methods.
The Forex market is run electronically within a network of banks, with no physical location or central exchange. The only cost of trading is the spread, however sometimes brokers charge commission or other fees in exchange for lower spreads.
Neither the trader nor the underlying asset have the right to actual ownership of the asset. The trader is simply speculating on the exchange rate when one buys EURAUD, rather than purchasing euros and selling Australian dollars. A trader buying a CFD on the FTSE 100 is not actually owning the stocks in the index, but is speculating on its underlying price. It’s simply another kind of CFD.
Differences of CFDs and Forex
Different types of contracts covering a diverse set of markets, such as indices, energy, and metals, are the main differences between the two. Depending on the country in which the underlying asset is originated, you have the chance to pick different contracts that vary in increment value and currency type.
A currency is traded against another currency in uniform lot sizes. The general factors that tend to influence the different markets are a final difference between the two.
Specific factors, such as supply and demand of a given commodity, or trend changes associated with business sectors, are some of the factors that are influenced by CFD trading.
Large employment shifts or international political changes are some of the global events that drive the trading of the foreign exchange.
Frequently Asked Questions
What is the key difference between CFD trading and Forex?
The main differences between CFD trading and Forex trading is that CFD trading involves different types of contracts covering a diverse set of markets, such as indices, energy, and metals, whereas Forex offers pure currency trading. With forex, when you trade a currency pair, you are essentially buying one currency and selling the other.
What are the similarities between CFD trading and Forex trading?
Both types of trading involve a similar trade execution process. The primary similarity between CFD trading and forex trading is that neither entitles the trader to actual ownership of the underlying asset.
What requires more margin/money Forex or CFD?
With forex, the margin requirements are far less compared to CFD trading contract specifications. Usually the leverage in FX pairs is much higher and thus you will need less money to trade forex.