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Visit our FAQ page to find the answers to the most commonly asked questions, including how to create an account, explaining ETFs, and providing useful links, forms, and tables.

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CFD and FX Trading Compared

What's the difference between CFD and FX trading? We explain both the similarities and the differences between the two.

 

CFDs vs FX

 

Watch the video below to learn about the fundamental distinctions between CFD trading and FX trading.
 


Similarities of CFD and FX Trading

CFD trading and FX trading have many similarities. First, both types of trading involve a similar trade execution process. Traders can easily enter or exit the market in both rising and falling markets. Second, both CFD trades and FX trades are executed on the same platform, using similar looking charts and pricing methods. In both cases, trades are executed in the over-the-counter (OTC) market, which is run entirely electronically within a network of banks, with no physical location or central exchange. Another similarity between CFD trading and FX trading is that the only cost of trading is the spread, as opposed to other types of trading instruments that charge commissions and other finance fees.

The primary similarity between CFD trading and FX trading is that the trader doesn't actually have ownership of the underlying asset. When one buys EURAUD, for instance, one is not actually purchasing Euros and selling Australian dollars; rather the trader is simply speculating on the exchange rate. Likewise, when a trader purchases a CFD contract on the FTSE 100, the trader is not actually owning the stocks in the FTSE index, but rather is speculating on its underlying price. In many ways, currencies are simply another kind of CFDs.

 

Differences between CFDs and FX Trading

The main differences between CFD trading and FX trading is that CFD trading involves different types of contracts covering a diverse set of markets, such as indices, energy, and metals. When you trade CFDs, you have the opportunity to select different contracts that vary in increment value and currency type, depending on the country in which the underlying asset originates. FX trading is about trading one currency against another currency and always involves trading in uniform lot sizes.

A final difference between CFD trading and FX trading relates to the general factors that tend to influence the different markets. CFD trading is mostly influenced by specific factors, such as supply and demand of a given commodity or trend changes associated with business sectors. FX trading on the other hand is mainly driven by global events, like large employment shifts or international political changes.
 

To learn more about trading CFDs and FX trading, see our free trading guides.

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