Of course, there are some key differences that you should know about as well. CFD trading spans a larger set of financial markets, as these contracts can involve various commodities or equity indices of several countries.
Some brokers even offer CFDs on stocks traded in different exchanges, opening a very wide realm of trade opportunities! For instance, crude oil CFD prices are mostly driven by supply and demand or by seasonality. Prices of equity CFDs can be determined by business factors or company-specific events, such as earnings or acquisitions.
Meanwhile, price movements in the spot forex market are mostly influenced by fundamental factors, such as economic growth and monetary policy expectations. Risk sentiment also plays a role in currency price action, along with geopolitical tension and to an extent, environmental factors.
CFD and forex trades are generally executed in the same manner in an OTC market under a decentralized exchange. As always, remember that leverage can be a double-edged sword!
In CFD trading, transaction costs can involve commissions, which vary depending on the underlying asset. With that, trades kept open for much longer are subject to increasing interest charges, which can wind up eating a huge chunk of your trade returns. On the other hand, financing costs on short CFD positions are typically received by the trader. Brokers offering commodity CFDs usually have the futures market as the basis for their contract pricing, which means that there may be expiry dates and settlement costs as well.
The broker can arrange an automatic rollover when the settlement date of the associated futures contract is reached or deduct a cash settlement fee from the CFD position, which could also significantly reduce profits if you keep the trade open for a long time.
If you are considering trying your hand in CFD trading, it is recommended that you work with markets that you are more or less familiar with. As with forex trading, you might be better off playing with a demo account first before risking real money in a relatively unfamiliar territory. Partner Center Find a Broker. With a last name like Ninja, I decided long ago to specialize in espionage. And with my first name being Forex, you guessed it, my other pasison was, well, anything and everything FX.
Naturally, I decided to combine my two loves into one, "spying" on the forex industry which I call "espipionage. I also profile existing companies that are making an impact on retail forex traders, all for your benefit. Set your night vision goggles ON. More from Forex Ninja. You may delay, but time will not.More...