Both Forex and trading CFDs are the favorite of many traders for so many good reasons. They offer a good amount of benefits making them so attractive to aspiring traders who are looking for ways to gain profit in the financial market. But traders tend to get confused as to what trading option they should choose. Knowing the differences and the similarities of CFDs and Forex allows you to get a clear view of the most suitable trading option for you.
What is it like to trade in CFD and Forex?
If you take a peek at the history, you will see that Forex trading has been around for quite a while, making it one of the first and oldest forms of trading accepted globally. Up until the present day, the Forex market remains at the top and is seen as one of the most traded financial markets all over the world, with approximately 6.6 trillion worth of trades being made every single day.
Meanwhile, CFD is newer if you compare it with the Forex market. It dates back as early as the 1990s. Although relatively new, CFD trading has become a popular trading instrument and retail traders love to start their first few trades using this instrument.
Forex Trading vs. CFD Trading
There are few differences that draw the line between CFD trading and Forex Trading. Although these types of trading have their own
Selection of Instruments
One major difference between CFD and Forex is the selection of instruments available on these two trading types. In Forex, you only have the option to trade currencies but in CFD, you can trade currencies as well as other assets in the market.
There are 8 major currencies that are usually traded in the Forex market. Forex brokers can offer you as many as 40 to 70 currencies that comprise major, minors, and exotics but with CFD trading, you can have thousands of trading instruments plus the currencies that are offered in the Forex market. It is fair to say that Forex trading is more straightforward since it only involves the trading of currencies and trading CFDs tends to be more complicated because you will be dealing with a number of markets.
In Forex, you will be trading uniform lot sizes no matter the currency pair that you choose to trade. It also has a standard lot which is 100,000 units of currency. But since the emergence of online Forex brokers, smaller accounts offering a small part of the standard lot can now be accessed. You can trade mini, micro, and nano lots in Forex.
There are a couple of factors that have a strong effect on the Forex and CFD markets. The movement in the prices in the Forex market is mainly due to the global macroeconomic events and also those that involve economic factors. While in the CFD market, the price fluctuations are due to specific factors that influence the instruments that are being traded. These factors include the ones from the business sector and the supply or demand of a particular commodity.