CFD and Forex: What Are Their Differences?

Though both CFDs (contract for difference) and forex do not involve the trading of any physical assets. They are both traded over the counter through a decentralised market with similar execution manners. Unlike other types of trading instruments that could involve other finance fees and charges, the only cost of trading for CFDs and Forex is the spread – that is also the source of income for a legitimate brokerage.

CFD constitutes a contract, but not a physical asset, between brokers and traders to pay the difference in the entry and exit price of that underlying asset in question. The profit or loss is calculated based on the entry and exit price difference and multiplied by the number of CFD units traded. CFDs allow traders and investors to dabble in many trading instruments, such as commodities, stocks, metals, indices, options, exchange-traded funds (ETFs) and more. On the other hand, forex trading is straightforward – it is the trading of currencies, and only limited to that.

Another distinction is how the markets are influenced. Global events or a nations stability, such as political changes and more fundamental factors, are the major drivers behind the currency market. However, CFDs are more inclined to be affected by supply and demand, trends, sector and industry development, and many other factors that could cause asset values fluctuation.

Furthermore, the forex market is open 24 hours a day, five days a week, allowing investors all over the world to trade whenever they want. CFD trading times vary depending on the underlying market, commodity, or asset.