More and more brokers start calling themselves as CFD brokers instead of Forex Brokers. What is CFD in forex?
Firstly, CFD stands for contract for difference. That means when you are trading with a CFD broker, you are trading on instrument by using leverage. With leverages you just trade for the difference in the price of the instruments without actually owning it and thus, the capital you need to invest reduces. Higher the leverage, less will be the capital required.More and more brokers start calling themselves as CFD brokers instead of Forex Brokers. What is CFD in forex?
Thank you for your fruitful explanation, I just want to know what's the difference between CFD and forex? Which one is better?CFD stands for Contracts for Differences. When you buy or sell a CFD, such as a CFD on gold, for example, you are not buying or selling the physical gold itself. Instead, you are trading a contract that enables you to make or lose money depending on how the price of actual gold moves.
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To clarify this further, let us assume you bought a CFD on gold at the price of $1300 per ounce. Then the price moved up to $1350. The difference in price here is $50, which is what you gain. If the price dropped to $1250 then the difference here is -$50, which is your loss. You make or lose money based on the difference in price, which is why those contracts are called contracts for differences.
There are CFDs on various types of financial assets. This includes stocks (equities), Exchange-traded funds (ETFs), indices such as the S$P500, commodities, and others. Some forex brokers offer only CFDs, even on currencies. That is, when you trade currency pairs with them you will be only trading a CFD and not buying or selling any actual currencies. When a trader buys or sells a CFD on any of asset, he or she is not owning any physical asset. Instead, he or she is trading a contract and realizes a gain or loss based on how the price moves.
Because the CFD trader does not hold a physical asset, his transactions do not affect the price of that asset. To clarify this, let us assume a large hedge fund bought massive amounts of Amazon stocks. This would have an impact (a footprint) on the price and raise it given the buying pressure. However, if a trader bought the same amount on an Amazon CFD, this would not necessarily raise the price up.