Forex vs CFD: Learn the Differences

CFD or Contracts for Difference and Forex are the popular tools of investments for traders all around the world. CFD Forex are famous and well-known for the opportunities they provide to the market dwellers. If you look for a way to earn the money by analyzing the market, you can try either Forex or CFD. Moreover, you don’t even have to choose.

Even though both these options are used by thousands of traders every day, some newcomers still wonder whether there is a difference and which one to choose. It would be totally unfair to say that one of them is better, mainly because they both have their specific and unique advantages. Once you have found out their resemblances and differences, you can decide which tool to pick to reach success.

History of Two Markets

Forex is considered one of the oldest trade forms in the world. Its roots go back to Ancient Egypt and Byzantine. Today it is one of the most popular financial markets around the globe. The daily trading capacity easily reaches $6.6 trillion.

CFD is not that “ancient”. Its existence starts somewhere in the 1990s. During the last years, CFD has significantly increased its assets and popularity. Nevertheless, this option is still considered to be innovative.

The Differences

Before you decide which market is more suitable for you, check out their differences:

  • Sizes of contract. There is a standard lot in Forex trading, which is 100 000 units of any currency you deal with. Sometimes brokers provide smaller accounts that are just pieces of one lot. The general sum is divided into 1000 and 100 blocks. CFD offers versatile options for traders. Depending on the assets you are dealing with, the size can vary. If you work with metals, the standard amount for the contract starts with 100 ounces, while you need to provide at least 1 share to work with equities.
  • Instruments. Forex is mainly limited by currencies, while CFD provides a wide range of assets to work with. On the Forex market, trading is connected closely with 8 main currencies. Some brokers still offer up to 70 world currencies, including not only main but minors and rare options. CFD brokers lure their clients with a wide range of tools, including currencies. Thus, CFD is complex, while Forex is more accurate. CFD brokers work with Forex contracts, commodities, indices, and equities. Since cryptocurrency is gaining popularity, the CFD market gives you an opportunity to work with it.
  • Trading cost. There is a similarity for both markets here. Required sums for both CFD and Forex are based on the spread. CFD requires extra money depending on the trading opportunities and specifics. It also depends on the asset that is traded. Overnight-held positions for CFD can sustain the financing costs. CFD and Forex usually act based on the trading cost and the spread of the asset. At the same time, CFD costs may include commissions.
  • Market influence. There is a wide range of factors that affect life on the Forex and CFD markets. Macroeconomic as well as economic changes affect the Forex market. Risk sentiment and big shifts of employment, GPDs changes in the countries which currencies you trade, must be checked in advance. As for the CFD market, it changes under the influence of an even bigger amount of factors. Depending on the instrument you choose, the factors can include unstable business sector, product demand, and supply. Earnings are under the influence of S&P 500, DAX30, and FTSE100. Prices on crude oil heavily depend on supply and demand for oil. Equities are dependable on the company’s reputation and changes in the business.

Which Market to Trade?

If you can’t choose the market you want to start working with, think about the risk profile, trading goals, and your personal preferences. Both markets offer multiple opportunities and can help you reach your goals. However, you have to be interested in trading. There are also disadvantages that both of the markets reveal, and you have to be ready to face them too. Many experienced traders believe that you can’t choose only one of them if you want to earn a fortune. They trade on both these markets.

Learning the differences and similarities of Forex and CFD, you can calculate your chances with both of them. You can also come out with your own unique trading strategy for one of these markets. And while it may be beneficial for one, you can’t possibly use it for another. Use your knowledge to raise the potential you have and build a career in trading. Without any doubt, you still have to learn a lot to become a successful trader, but you can start here, by learning the simple difference between these two markets. No matter which one you choose, analyze the situation on the market before you act.