If you’ve just started your trading journey you’ve probably come across Forex and CFDs. But what’s the difference between Forex and CFDs, and which is right for you?
Let’s start with the biggest difference:
- Forex refers only to trading currency markets.
- CFDs can be used to trade almost any asset, from stocks, indices, commodities, currencies to cryptocurrencies.
Stryk is a CFD trading platform so you can access many different markets and assets.
In simple terms, Forex is the currency trading market. It’s the biggest market on the planet with approximately $7.7 trillion trading volume daily. The vast majority of this volume comes from just eight currency pairs including EUR/USD, GBP/USD and USD/JPY.
As a result, the Forex market is heavily swayed by macroeconomic factors. For example, central bank monetary policies and data such as GDP and employment figures.
The market itself dates back hundreds of years so it’s one of the most established financial markets in the world.
CFDs allow you to trade a much wider variety of financial assets. Similar to Forex, you can trade currency pairs with CFDs. However, you can also trade stocks, indices, commodities, precious metals and even crypto through some brokers. CFDs are a much newer market, established in the 1990s.
Forex and CFD similarities
There are, however, some similarities between the two.
- You don’t own the underlying asset – When you trade a USD/JPY pair with Forex, you don’t actually own any dollars. You’re just getting exposure to the price movement. Same goes for CFDs. You don’t own a stock when you use a CFD broker, you just trade the price movements.
- You can add leverage – Most Forex and CFD platforms allow you to use margin and add leverage to your trades.
- Go long or short – You can trade the markets up or down with both Forex and CFDs.
Which should you choose?
It completely depends on your trading strategy. If you are only trading currencies, then perhaps Forex is the best option as it’s the largest and most liquid market for currencies.
However, if you want access to a broad range of assets including stocks and indices, then CFDs could be a better choice.
Don’t forget, you can start with a Demo Stryk account and try out CFD trading before you put real money on the line. That way, you can see if CFD trading feels right for you.