In this guide, I will talk about some similarities and some differences between forex and CFD.
These two happen to be one of the most popular choices among traders. Both of them have some very important similarities and differences that you should be keeping in mind.
CFD trading and forex have a very similar trade execution process, which means that both the processes, when it comes to execution or similar. The traders can very easily enter or exit the market when we are talking about the falling market and the rising markets. Secondly, both CFD trades and forex trades have been known to be executed on the same platform, utilising a very similar looking chart and very similar pricing methods.
In both the cases, the trades are actually executed in the OTC market, which is also called “over the counter” market, and it is entirely run electronically with a proper network of banks. There is absolutely no physical location or even a central exchange, if you wanted to see one. Another similarity that I would like to focus on would be that CFD trading and forex trading is the cost of the trade is spread, when compare to other types of training instruments which charge proper commissions and all kinds of financial fees.
One of the most primary similarities between these two is that the trader does not actually have any ownership of any of the underlying assets. When a person buys EURAUD, for example, one is not exactly purchasing euros and selling them in Australian dollars; rather, the trader is just speculating on the exchange rate. When a trader purchases a CFD contract, a trader does not exactly own the stocks, but he is speculating on the underlying price.
In these ways, forex and CFD are very similar to one another.
I will now mention some of the differences between the two.
One of the main differences between CFD trading and forex trading that I would like to focus on is that CFD trading will involve some different types of contracts which will cover a very diverse set of markets like indices, metals, energy. Whereas, forex would offer pure trading when it comes to currency. When you happen to trade CFD is, you will have the opportunity to select some different contracts which will vary in the increment and currency value and type, which will completely depend on the currency in which the asset originates from.
You should also know that forex trading is all about trading one currency against another currency, and it will always involve trading lot sizes in uniform.
Another difference that I would like to focus on is that it tends to influence very different markets.