Forex and CFDs have a lot of similarities. With traders and potential investors, comparison and contrast between these two can help them make well-informed decisions and even to an extent for that trader to even integrate Forex and CFDs in their CFD trading strategies. When studied correctly, this may open horizons for any potential trader looking into fusing both in their daily trades that will eventually lead into better chances of profit.
First and foremost, we need to learn the basics. CFDs or Contract For Difference are contracts between traders where they exchange the differences between the entry and exit price of an underlying asset. These contracts are used to speculate on different assets like oil, precious metals and foreign exchange markets.
Forex Trading is a bit straightforward and is one of the largest markets for potential investors. Forex trading is the trading of different currencies against one another. Potentially one of the more lucrative in terms of trading volume as this market has more than US$5 trillion.
CFDs may seem a little complex however, when trading CFDs, traders may garner flexibility. They may choose currencies they intend to trade and the increment values they want to use. Basis for the trades are calculated from the difference between entry and exit prices and based on the number of CFD units as multiplier.
What are the similarities between Forex & CFDs?
- CFD and Forex trading trade over the counter and do not transfer any physical assets Transactions happens through a network of financial institutions and all their trades are also executed similarly.
- CFDs and forex are their trading costs which is the difference between the entry and exit points, at least partially based on the spread.
- Another similarity that forex and CFD has is its access to margin. The margins traders can utilize when trading CFDs are generally declared as a fixed percentage. Let’s say you have a contract that has a margin of 5%, in CFD trading, this means a trader can put down 5% of the contract’s total market position value and may borrow the remainder.
- Both Trade through the similar platforms available and have even prompted most existing service providers to have features where you are able to use both forex and CFDs. This definitely makes it easier for trading in Forex and CFD.
What are the differences between Forex & CFDs?
- Compared to Forex, CFDs give a little more flexibility by giving a range of contracts with incremental values and different currencies.
- Unlike CFD, the forex market is open 24 hours a day during the weekdays and offers investors all around the globe access to trade at their convenience. The trading times for CFDs vary depending on the asset, commodity and underlying market.
- A major difference between the two is their key price indicator. The price of CFDs depends mostly on the underlying assets supply and demand. The currency value, however, relies more on the fundamental factors that can include the strength of key economic indicators and whatever policies are in place.
Both Forex and CFDs have very important similarities that potential brokers or traders should know. When mastering at least the fundamentals of both will improve potential methods of speculation and may even be well equipped with the proper strategies that are required in trading in both markets. Any trader will tell you that being well-informed in both their differences will enable you as a trader to be very dynamic in making key decisions based on your trading strategies.