Forex and trading CFDs possess similar characteristics. One of their similarities is the trade execution process. Both Forex and CFDs allow traders to enter or exit the market in both directions. Additionally, Forex and CFDs are being executed in the same trading platform, with similar pricing methods and charts. They are traded in an over-the-counter market that is basically run by a network of banks and no physical location is available. Another common thing about CFDs and Forex is the use of spread instead of commission. Traders do not need to pay other things apart from the spread, unlike other instruments that charge not just commissions but also other financial fees.
Another huge similarity between Forex and CFDs boils down to the ownership of the underlying instrument. In Forex, when you purchase EURAUD, you are not entirely owning the Australian dollar and the euros, you are just speculating on its price movement in the Forex market. Meanwhile, in CFDs, you can also speculate in the market without owning the underlying asset. But then, it is important to note that there are also obvious differences portrayed by CFDs and Forex and it is something that you need to see if you are torn between CFDs and Forex trading.
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Differences of Forex and CFD Trading
As mentioned above, these two trading styles have a couple of similarities. However, they also have differences that set them apart and one of these is the type of contracts involved. In Forex, you only get to trade currency pairs and nothing more. But in CFDs, you can trade multiple assets including metals, energy, indices, commodities, cryptocurrencies, and Forex too.
If you choose to trade CFDs, you will have a wide range of markets to choose from and this is something that most experienced traders want. Diversity, after all, will benefit them greatly. But for those new to the market or traders who are just comfortable trading currency pairs, Forex trading is the most appropriate option to take. It is simpler and more direct than CFDs. There are even some traders who refer to CFDs as a more advanced way of trading, which is true in some ways.
Additionally, another difference between CFDs and Forex is the currency type and the increment value. In CFDs, you can choose different contracts according to these things while in Forex, you will only consider the trade of one currency against the other currency. Moreover, trading Forex involves trading similar lot sizes all the time. Another difference between trading Forex and CFDs is about the general factor that influences various markets. With CFDs, there are several factors involved and it is influenced by these factors namely the supply and demand of a certain commodity or changes in the business sector. But with Forex trading, the main thing that influences the market prices are global events such as international political changes or employment shifts.
Knowing these things, you now have a clear view of the difference between CFDs and Forex. Take some time to understand these two trading methods before entering your first trade.
