Cfd vs Forex
Look-alike pair
A CFD is a derivative contract between a trader and a broker that pays the difference in an underlying asset's price, while forex is the actual global market for exchanging national currencies. The single difference that matters: a CFD is a synthetic instrument that can track many assets, whereas forex is the real asset class of currency pairs.
Side by side
| Cfd | Forex | |
|---|---|---|
| What it is | A contract for difference: a derivative that settles the price difference of an underlying asset without owning it. | The foreign exchange market: the physical exchange of one currency for another at an agreed rate. |
| Underlying assets | Can be shares, indices, commodities, cryptocurrencies, and also forex pairs. | Only currency pairs, such as EUR/USD or USD/JPY. |
| Ownership | No ownership of the underlying asset; the position is closed by an offsetting trade. | Actual ownership of the bought currency and delivery of the sold currency, though many retail trades are rolled over. |
| Field mark | The term 'CFD' appears in the product name or contract specification, and the trade ticket shows a contract size in units of the underlying. | The term 'forex' or 'FX' appears, and the trade ticket shows a currency pair with a lot size (e.g., 1 lot = 100,000 units of the base currency). |
| Regulation | CFDs are banned or restricted for retail clients in some countries, such as the United States; rules vary by regulator. | Forex trading is regulated differently across jurisdictions; retail leverage limits and registration requirements vary by country. |
| Typical use | Speculating on price movements of a wide range of assets without owning them, often with leverage. | Exchanging currencies for trade, travel, or investment, and speculating on exchange rate movements. |
Which word to use
Use CFD when you are trading a derivative contract that tracks an underlying asset without owning it, and use forex when you are specifically trading currency pairs in the foreign exchange market.
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