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Forex and CFD Trading: Differences and Similarities




Since trading has gone online, there are many ads and invitations that make you think about making money from home on trading. Maybe you have noticed these thoughts cross your mind, so you think of giving it a chance. If you want to try your aptness and trade CFDs online, but don’t know where to start, you will probably find helpful this little explanation about the differences between these basic concepts.

What’s What?

Forex (or ForEx) stands for “Foreign (currency) Exchange”. It’s a decentralized market rather than an institution. Having emerged in 1973 after the Bretton Woods system was replaced with Jamaica accords, and world currencies were no more bound to gold, ForEx only welcomed professional brokers and traders until the Internet era.

CFD stands for “Contract for Difference”. It’s a type of derivative options based on some asset and the change of its price. After the buyer and the seller make a deal, at a certain time the buyer pays the seller if the price of this asset has grown, or the seller pays the buyer if it has declined. Physical assets do not get involved at all, acting as a reference to who pays whom and how much. If these assets are currencies, CFD becomes a Forex tool.

In short, Forex is an environment (where currencies and other assets are traded), CFD is a tool one can use within this environment. None of them requires you to actually own the asset; the money you invest, lose, or earn, though, is completely real.

Why Do They Look So Similar?

Because both traditional Forex and CFD trading deal with the same processes and involve the same tools. They deal with graphic charts showing processes on the market, like price changing. Both offer free demo tools and lots of materials to study. As you only deal with derivatives here, it let these sorts of trading easily go digital and take amateur-friendly shapes.

Nevertheless, in general, Forex trading covers various types of contracts, including CFD, but not only. CFD is rather a tool that’s easier to comprehend.

What’s Easier in Terms of Making Money?

Trading is a combination of science and art, as it has always been. Now it’s easier to access via computers and smartphones, but it does not grant anything. A successful trader needs to be capable of both reading purely market signals and trends and predicting them from outer factors (politics, industry, even climate changes and natural disasters).

In both cases, there are regulations by government committees that do not let brokers act too maliciously. The only thing granted by these regulations, though, is that you will not be robbed by your broker. The rest depends on your gift, skill, and attitude. It’s like rapping: it just takes a pen and a paper to start rhyming, and then, if you like it, spend a little money on recording and promotion. But it takes a lot of talent and effort to join Eminem, Jay-Z, or Kanye in their league.

It’s Up to You

If you have found this interesting, you can leave a comment and share what you think. Bring it to the discussion: share this on Facebook or Twitter to discuss it with your friends. There is always more to discover if you’re interested!

With experience as a full-time environmentalist and part time journalist, Lisa heads the post of editor at California Herald. She covers all the significant proceedings in the world of Environment while editing all the news pieces posted over the website to ensure everything aligns with the journalistic format.

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