The difference between CFD and forex are popular investment choices for many traders around the world. Several benefits offered by them that make them interesting to people looking for success in the financial market. However, there are still many traders that wonder which one is better.
Neither of the two markets is better than the other is the simple answer. For that, the more precise question to ask is what are the differences and similarities between these two large markets.
This way, it will be easier to determine which one is more suitable for your long-term trading plans and goals. With a history of years ago, one of the oldest forms of global trading is forex trading.
The daily trading volume of the forex market today is $6.6 trillion. The CFD is newer than forex, with a shorter history since the early 1990s. However, CFDs becoming increasingly popular among traders and have emerged as innovative trading.
The Differences between CFD and Forex Trading
The main difference between these trading is that CFD contracts cover a wide range of assets while forex is just trade currencies. With fx trading, the majority of the trading volume is the eight major currencies on the forex market.
1. Instrument selection
Those on equities, forex, and commodities are several of the commonly traded CFD contracts. This gives you exposure and access to a variety of trading opportunities such as an international stock portfolio that you may not have direct access to.
2. Contract size
The lot size in the fx trading is uniform regardless of the traded currency pair you choose. 100,000 units currency is a standard lot. Smaller accounts are also offered by the best forex brokers which are a small part of standard lots.
Apart from providing significant flexibility of the tradable instruments, a wide range of contract sizes are offered by CFD trading as the difference between CFD and forex. Depending on the chosen instruments to trade, various amounts can be expected in the number of assets that make up a single CFD.
3. Market influences
Various factors influence the forex and CFD market. Global macroeconomic factors are the main influencer of the price movements in the fx market. This can include aspects such as risk sentiment, major job shifts in a particular region, monetary policy, et cetera.
In the CFD market, the price fluctuations depends on the specific factors that affect the instrument being traded, this is the next difference between CFD and forex. Several factors can be included such as demand and supply for specific commodities or changing trends associated with a certain business sector.
Similarities between Forex and CFD Trading
Similar trade execution processes are included in both forex and CFD trading. The trade execution is handled by the same platform using similar trading charts and pricing methods. Also, a network of banks, not one centralized exchange, processed both CFD and fx trading.
CFD trading can give the advantage that the price movements can be speculated whether the market is going down or up. If you think that there will be an increment of the underlying asset, you buy (long trade). If you think the value will go down, you can sell (short trade).
Likewise, the high liquidity in the forex market makes it possible to trade during down and uptrends. A currency pair can be bought in a rising market and result from a profit by sells it when you close the trade, at a higher price.
Whether fx or CFD, you can choose based on your necessity. When it comes to
forex trading, choosing the trustable broker is the first thing you need to do. With didimax forex broker, get many advantages and become an advanced trader and understanding the difference between CFD and forex.