4 Tips When Choosing CFD Trading vs. Spot Forex Trading

 

Before you start forex trading online and start reading all those forex trading tips, you need to step back and consider a new type of trading: CFD trading. Expanding the possibility of trades is a benefit of CFDs which are present along a broader market instead of being set on currency pairings only.

These two different forms of trading are also similar in nature.

1.     CFDs Span Larger Financial Markets

Contracts for differences, CFDs, span over a larger array of financial markets. If you trade CFDs online, they’ll offer different CFDs from other platforms. Most contracts include commodities and equity indices, and others will allow stocks traded among different exchanges to be included which expands the potential when making a trade.

Spot trading is limited to the currency market only.

2.     Trade Execution is Often the Same

Executing a CFD or forex trade is similar. The physical transfer of an asset will not occur with either of these trading types. Opening and close prices will determine if a trader wins or loses on a trade.

Platforms that offer both forex and CFDs is the best option.

3.     Price Movement Basics and Factors

Price factors are different between spot forex and CFDs. Forex price factors are reliant on:

  • Monetary policy
  • Economic outlooks

CFDs are influenced more on the basis of:

  • Supply and demand
  • Company events
  • Earnings or acquisitions

Traders will find that they’re more drawn to one type of trading instrument than another depending on these factors. A trader that watches the markets closely and is privy on acquisitions, earrings reports and sales numbers will excel with CFDs.

4.     CFD Trade Costs Differ from Forex Trade Costs

CFD trading costs are based on different factors, which can include transaction cost and may or may not include a commission, too. Forex costs are based on the bid-ask spread of a broker.

Financing costs for a CFD held overnight can be assessed, too.

Interest charges for CFDs kept open for a long period of time are also a consideration because they’ll lower the size of your return. Future markets are the basis of CFDs and their contract pricing.

CFDs will require you to work in markets that you’re more versed in.

Forex trading offers a demo account in many cases, and there are forex trading strategies that can be followed to lower risks and help better manage risks of a trade.

Forex and CFDs use margins.

Learn and understand fixed percentage and leverage ratios before trading.

The post 4 Tips When Choosing CFD Trading vs. Spot Forex Trading appeared first on Key Investing.
Source: Key Investing Forex

 

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