But when examined more in fact there are some significant differences between forex and CFD trading. That the difference between the two types of trading is on the service aspect of trading and product type, factors that impact on the trading market, as well as the reasons investors factor in the selection of these two types of investment products. Before going into more detail differences between the two types of investment instruments, we'd better ingredients one by one in advance what it is CFD and forex.
What is CFD?
In general it can be explained that CFD is a derivative contract which is basically financial instruments such as bonds, stocks, or other securities and derivative instruments, for example commodities, stock indices or futures contracts. This is kesepatakan CFD contract between two parties to pay the difference between selling and buying. The buyer pays to the seller if the price has decreased.
This is why CFDs allow investors to earn higher profits than growth or also in the event of a decrease in the underlying instrument contract. Clients also possible to perform transactions ranging from 0.1 exchange contracts because these investments have a low input threshold with the provisions margin is small. Here's some profit opportunities in investing in CFD's.
- If there is an increase or decrease in the stock market, the use of CFDs on individual shares his / her own or CFDs on stock market futures.
- In the event of changes in global prices of the products are popular, using a CFD on commodity futures exchanges.
- If there is a decrease or an increase in the stock of bonds, using CFD futures on the exchange bonds and the interest rates between banks.
- Investors can apply more sophisticated strategy by utilizing a combination of several tools.
What is forex?
Forex or foreign exchange trading is a term often used for foreign exchange transactions or foreign currency. Forex definition is the activity of buying and selling foreign currencies and traders profit from the difference between the price of the currency. Unlike other conventional markets, activity in the forex market is active for 24 hours and five times a week. When calculated daily forex trading has a value of approximately US $ 1.5 trillion. The United States has an average Treasury bond market amounted to US $ 3 trillion per day while the stock exchange market turnover was US $ 100 billion.
It can be concluded that the forex market is the largest market with turnover of between others. While the currencies most traded are the US dollar and Euro or currency pair Japanese Yen and the US Dollar. Almost all forex transactions in the currency - major world currencies such as Euro, US Dollar, Japanese Yen, Canadian Dollar, Australian Dollar, Swiss Franc, and British Pound. In contrast to other financial products exchange forex exchange as the New York Stock Exchange forex business had no central physical location. The opening of forex market will begin in Sydney Australia, then moved to Tokyo of Japan, London, and finally New York.
Along with the rapid development of technology, forex trading transactions can be done with the more practical by means of internet or online forex trading. In addition to begin the required investment capital is also not too much longer. In general, activity on the forex market comes from currency traders who seek to make a profit from small movements in the forex market.
Return to the previous theme, the following is a detail the differences between the instruments Forex and CFD instruments.
1. Product and trading services
In forex trading is specifically concentrating on foreign currency transactions or exchange. Forex trading techniques take into account the difference in the currency pair traded.
CFD, while providing products and services with more variety in the form of trading derivative contracts of some financial investment products such as metals, energy commodities, stocks, indices, equities, and forex. Thus investors can freely select the contract or trading with foreign currencies and the value increase or increment value in accordance with the area of the country where the assets are derived CFD trading.
2. Factors affecting the market
In trading forex or CFD there are changes in market conditions that occur due to beberapahal. Factors that impact the differences between trading CFDs and forex.
In forex trading the factors that influence the occurrence of fluctuations is a global event or a particular situation. Transactions related to foreign exchange rates in general is influenced by various factors of production economics associated countries who trade forex, the political situation and the security of international unrest or conflict, natural disasters, governance of natural resources and human resources management.
While on CFD trading things that have an impact on the exchange trading in more surely toward the state of demand and supply of a commodity or can also change the trend of the sector commodities business transacted through CFD contract. Examples of things that affect the trading CFD for example, fluctuations in obligas and stock exchanges. There are also a factor for change in international prices of commodities or products whose demand is highest.
3. Reasons trading investors
The third difference forex and CFD trading is the reason investors in the selection of these trading instruments. In general, investors choose to trade forex for several reasons such as speculation or hedging purpose. But the most important reason is for the sake of investment activity as well as international transactions.
Foreign currency transactions is done not only by central banks or institutional investors but also by individual investors or speculators retail. Currency actually also traded in the CFD market but more commonly traded forex brokers and banks. In choosing a forex contracts in general retail traders or small investors chose a micro or mini unit.
Another reason for investors to trade CFDs is because their interest hedging or financial speculation. CFD executed with the transfer of funds from hand to hand but is concerned not have ownership of the underlying asset. Trading positions associated with CFD is short positions and long positions and can be opened based on the assets of a trader sentiment. Why CFD investor has the objective of hedging is to protect the value of investments in equity and commodities using these contracts. Another reason that may be owned by investors is speculation because it wanted to trade shares of foreign countries with limited capital.
Here are some factors that differentiate forex and CFD trading. Hopefully difference both investment instruments are now becoming clearer to you.