Choosing Between CFD and Forex - How Different Are They?

Many people are interested in trading, but they are not able to make a decision about whether to take up Forex trading, or to choose the CFD trading.

13:07 28 August 2019

As a matter of fact, both CFD trades and Forex trading work on similar lines, which is why the confusion about which to choose is understandable.

Let us begin by stating that you cannot really compare these 2 types of trading, and decide on which one among them is better. Both of them have their own plus points and minus points. You cannot even decide on which of them is less risky either. Your choice should basically depend on what kind of trader you are, and what kind of investment profile are you managing.

Trading capacity:

If you are starting on a low budget in the lines of around $500, then you should consider Forex trading. That however does not mean that there are no risks involved. When you start trading, you should also be prepared to take up losses. If you are prepared to take up losses in trading, then even the small setbacks will hit you real hard, and you will lose your vision from the bigger picture.

If you are willing to get started with bigger capital for trading, then you must surely consider CFDs or the Contract For Difference. Again, it is almost like the Forex trading, where you don't really own the underlying asset. Rather, you will be speculating on the movements, and taking benefits of leverage to earn money.

It is important to use a reliable broker platform, if you are getting into CFD trading. Some of the best brokers offer platform for CFD trading on different markets like indices, commodities, crypto-currencies, shares, and also on Forex. They provide both, web based and mobile trading platforms.

Additionally, they provide a lot of information and resources to help the traders in making informed decisions. For example, if you are interested in knowing about the Babcock share price, you can get the live updates about everything that you will need to know, to place your trade.

 

CFD trading is also similar to Forex trading, in terms of execution of transactions from over-the-counter. You can put your money on both, the falling or the rising markets. What it means is that you can either buy or sell, as per the market swings.

Both of these trading types are based on speculations, rather than actually owning the underlying assets. For example, if you are trading on a commodity like oil, you will not be purchasing barrels of oil. Instead, you will be placing your money, along with leverage, to speculate the movement of its value.

Many economic aspects, as well as market sentiments, drive the growth or fall of asset values. Like Forex, you will have to bear the trading cost for each of your transactions. These expenses will include the spread or commissions that it will be deducted from your trade at the offset.

CFD offers better flexibility:

Although not recommended for beginners, CFD trading gives you more flexibility with the available variations such as the lot-size and minimum thick size. It is also seen as the best solution for hedging or mitigating the losses from the long term trade transactions.