Hi All,
Hope someone can help me with this. Can you explain to me the difference between forex and CFD trading? My understanding is forex trading you own the asset (currencies) you trade and with CFD you don’t own the underlying asset. is this correct?
I would like to trade forex but I don’t feel comfortable trading if I don’t own the asset being traded. Not owning the asset and simply speculating on the asset’s increase/decrease in value seems like gambling to me which i’m not comfortable with.
Thanks
CFD-Contract For Difference. you are contracted to pay the difference. what is the beauty of that? well, you can understand better with shares example, though i’m not that experienced with shares. say you buy $5000 worth of shares. they go down in value and you sell at 4000$. you lose 1000$. now, without cfd, you would have to have $5000 on you to buy the parcel. with a cfd though, you don’t have to have that much, but a smaller percentage (called margin). e.g.$800 . using cfds, you only needed $800 to buy the $5000 parcel of shares. however, in both cases (with /without a cfd) you still lose $1000. you are thus ‘contracted’ to pay the ‘difference’. when you sell the share-cfd, your account size will become 1000 smaller (just like it would with normal share trading account). you just pay the difference, hence it’s Contract for Difference. also, with cfds, you can buy several instruments e.g. shares, forex, comodities etc. they have cfds for many instruments. so you would have like one account to buy forex, shares, comodities etc. and that can be convenient.
to summarize, cfds allow you to use margin, but you still pay/gain the difference made/lost at the end of the trade. so they are called ‘contract for difference’. and cfds cover several instruments, and not just forex.
now with forex, i haven’t got my account yet, but it is similar in that u pay margin. however, you can only buy forex and not other instruments. a cfd allows you to buy other instruments too. that is my understanding. could be wrong, but that’s what i think.
I don’t think so, others instruments are also available here; although the number is not much higher as like CFDs.