The similarities between Forex and CFDs
There are many similarities between Forex and CFDs and both types of trades are executed using similar looking charts and pricing methods. They also carry similar transaction costs, commissions, spreads, as well as the overnight roll over swaps. Plus, they can both be leveraged.
Trading Forex and CFDs allows traders to enter or exit the market in both rising and falling markets – which means you can choose to go long and short – something you cannot do when buying traditional shares.
Importantly, with both Forex and CFDs, you do not own the underlying asset that is being traded, you only speculate whether its future price will go up or go down. This is probably the greatest similarity between the two types of trades, as in neither case does the buyer or seller have ownership over the assets traded.
With so many similarities, what makes Forex and CFDs different?
As well as many like-for-likes comparisons, they also have important differences.
When it comes to leverage the CFD trading margin is generally stated as a fixed percentage.
If the margin is set at 10% then traders can deposit 10% of the total value of the trade. Whereas in Forex trading, the margin is stated as a ratio. If the leveraged ratio is 1:10 to £1 you can make a transaction of £10.
One of the main differences between Forex and CFDs is that Forex is only for currency trading,and CFDs is far broader and covers indices, commodities,stocks or cryptocurrencies.
When you trade CFDs you may select different contracts that vary in value and in type of currency, it all depends on the source of the underlying asset.
Forex is only about trading currency – any currency against any other one. It is viewed that CFD trading has access to a broader range of opportunities and investment possibilities, without the need to use different platforms.
With CFDs prices depend almost entirely on supply and demand. With Forex supply and demand plays a part, but the fluctuations on values is dependent on other things like national and international events and local economic policies in the case of each currencies.
