Clearly, you have been told by numerous friends about finally investing that hard earned money through stocks However, you start hearing other options for your investment and, given that you would want to have your money invested on something that will give big returns is always the logical choice. You encounter things from your friends and start checking out Forex and how you can invest your money and multiply your savings into big money. Then things get really interesting, you stumble upon CFD trading and get even more intrigued. But wait a minute, which one is the better option between the two?
Common things between CFDs and Forex
Forex and CFD trading have quite the similarities. Both of these trading types have almost the same methods in executing the trades. If you are a trader and you have experienced trading with CFDs or in Forex, you are probably aware that you can enter or exit the specific market in both falling and rising markets. And in terms of executing this, it is very simple for both methods. Another thing that is similar for both CFD and Forex are they are processed on the same platform and may use identically designed charts and even the pricing methods.You can start trading over-the-counter or OTC market and can both run on electronically linked trading through banks. There is both no need for any form of central or physical exchanges.
The main likeness between Forex Trading and CFD Trading is that you as the trader, do not necessarily have ownership of any of the underlying assets. For example, if you start buying EURAUD, you are not really buying Euros and selling Australian Dollars. Instead, you are merely speculating on the current exchange rate. Same with CFDs as when you buy a CFD contract, you are not literally owning the stocks but instead, you are speculating on the underlying prices. If you think about it, it is CFD and Forex are awfully alike.
But this is where CFDs and Forex are different
But of course, there are a few things that are different between trading CFD and Forex. First is that CFD trading has different kinds of contracts that cover a very diverse set of markets. These markets include metals, energy and indices. In comparison, Forex just offers currency type of trading. When you start trading CFDs, you are given the option to check the different contracts that may vary in currency type and increment value. This is dependent on the country where the underlying asset comes from. Forex is all about trading one currency versus another and would involve trading in uniform sizes.
Finally, the difference between Forex trading and CFD trading is the general factors that affect each market. With CFDs, it is mostly influenced by certain factors like supply and demand or trends. Forex trading’s main aspect of influence is generally coming from certain global circumstances like political changes in a country that affects others or shifts in large employment such as recessions.