Which is Better: Forex CFDs or Conventional Forex Trading

Ever since trading in foreign currencies was opened to the general public it has become increasingly popular with the investing community. Its popularity has also been instrumental in the introduction of trading in forex with CFDs.

With the introduction of forex CFDs, traders not only have another option they are also faced with a dilemma of choosing between the two. While there are many similarities between spot trading and CFD trading in forex, there are also differences that may influence your decision.

In forex, both spot trade and CFD trading offer an enormous amount of leverage. Leverage allows an investor to place trades of a much larger value than the amount deposited with the broker. While leverage increases the profit potential, it is a double edged sword that can cut both ways.

Another similarity is that both allow traders to make a profit regardless of whether the market is going up or down. Just as traders can buy or sell a currency pair, they can also buy and sell forex CFDs. In fact, CFDs can be bought or sold regardless of whether you are trading in shares, commodities, indices or forex.

However, one of the major differences is that most CFD dealers offer a guaranteed stop loss, a feature not available in spot trading. While a lot depends upon whether you are dealing with a market maker or have direct market access, availability of a guaranteed stop loss has a fair advantage over normal stop loss. Moreover, forex CFDs are more flexible in terms of size of your trades and are simpler; your profit or loss is simply the difference between the current value and the value on expiry of the contract.