Markets.com Logo
euEnglish
LoginSign Up

CFD forex vs. spot trading – which one suits your style

Jun 26, 2023
5 min read
Table of Contents
  • 1. CFD vs. forex spot trading: why do you need to choose?
  • 2. What is a forex spot trade?
  • 3. So, what is a CFD forex trade?
  • 4. There are 2 main key benefits to using CFDs to trade forex
  • 5. So, which will suit me better? Spot trading or CFDs?
  • 6. Summing up

CFD forex vs spot trading

 

If you want to trade forex, then CFD forex vs. spot trading is a decision you’ll need to make. Which one is best for you will be down to your own appetite for risk, as well as your trading goals.

 

CFD vs. forex spot trading: why do you need to choose?

Both CFDs and spot trades are a way of trading the foreign exchange (forex) market, where traders seek to profit from changes in exchange rates between currencies.

All forex trades are done as part of a ‘pair’, which means you are always trading one currency against another.

Common pairs include:

  • EUR/USD
  • GBP/USD
  • GBP/EUR

But there are a lot of different pairs available to trade.

The first currency in the pair is known as the base currency, with the second currency known as the quote currency.

In a forex trade, you’re always trading the price of the base against the quote.

So, in a GBP/USD pair, you’re trading the price of the US dollar against the UK pound sterling.

In GBP/EUR, you’re trading the price of UK sterling against the Euro, and so on.

 

What is a forex spot trade?

 

CFD forex vs spot trading

 

By placing a spot trade, you simply buy and sell your chosen currencies at their current price, in cash.

Then, if the price moves in your favour, you can profit from it.

 

Let’s take a look at a GBP/USD forex spot trade example:

Say the exchange rate is £0.8 sterling for each dollar.

You buy $5,000 for a price of £3989.40. (0.8 of $5,000.)

The exchange rate changes to £0.9 sterling per dollar.

So, you sell your dollars, and in return you get £4,500.

You started with £3989.4, and you’ve received $4,500 in return.

This means you’ve made £510.6 in profit on this trade.

Had the exchange rate fallen to £0.7 sterling per dollar, you would only have received £3,500 back, and lost £489.40 on the trade.

 

If you have enough capital to make this kind of trade, forex spot trades can be an effective way to trade the markets.

 

So, what is a CFD forex trade?

CFD stands for ‘Contract for Difference’. This means that you and a broker agree to exchange the difference (hence the name) between the price of a forex pair when the contract opens, and the price when it closes.

When you trade CFDs, you don’t actually buy the currencies. You simply speculate on the price movement, and don’t ever own either currency in the pair.

The price of the CFD pair should roughly correlate with the real price pair, though there may be a slight difference depending on market conditions at the time.

So, why would you choose forex CFDs over simply buying and selling the currency for real?

 

CFD forex vs spot trading

 

There are 2 main key benefits to using CFDs to trade forex

  1. CFDs enable you to go long or short on a forex pair with relative ease. If you believe that one currency will go down in value against the other, you may want to go short on the trade. When spot trading, this can be quite complex. When you trade CFDs, you can execute long or short trades using the same process.
  2. CFDs enable you to use leverage. You can use leverage to access bigger trades with less upfront capital. So, say you want to place a trade on $10,000 US dollars. If you used leverage 1:10 on this trade, you’d need a tenth of the capital - $1,000 – to place this trade. Your profits and losses are calculated on the size of the trade, not on upfront capital. This means that CFD leverage can allow you to get higher returns on your capital, but it also means you take on a lot more risk, and can lose more than the money you put in. As always, never trade with more money than you can afford to lose.

 

So, which will suit me better? Spot trading or CFDs?

There are a few things to consider here:

  • How much capital do you have? If you have sufficient capital to fund the entire trade upfront, then spot trading may be a better option for you, as you won’t need to use leverage. (Though, of course, you may still choose to.) Of course, if you’re using leverage, you should still never trade with money you cannot afford to lose.
  • How experienced are you as a trader? If you want to be able to go long and short with relative ease, using a single trading platform, then CFDs may be more suitable for you. Though, again, you still need to be sure you thoroughly understand how CFDs work before you use them.
  • What is your risk appetite? If you prefer to take less risk on your trades, then the chances are you won’t want to use leverage, as it increases your risk and opens up the possibility of you losing more money than you actually put into the trade. If this is the case, then it may be spot trading is the better option.

 

Summing up

Whatever option you choose to use, the two most important things you need to consider are:

  • Never trade with money you cannot afford to lose.
  • If you’re going to use high-risk tools like CFDs or leverage, be sure you take the time to thoroughly understand the inherent risks involved.

Risk Warning: this article represents only the author’s views and is for reference only. It does not constitute investment advice or financial guidance, nor does it represent the stance of the Markets.com platform.When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice. Trading cryptocurrency CFDs and spread bets is restricted for all UK retail clients. 

Shaun Edwards
Written by
Shaun Edwards
SHARE

Markets

  • Palladium - Cash

    chartpng

    --

    -1.17%
  • EUR/USD

    chartpng

    --

    -0.12%
  • Cotton

    chartpng

    --

    -0.74%
  • AUD/USD

    chartpng

    --

    -0.49%
  • Santander

    chartpng

    --

    0.16%
  • Apple.svg

    Apple

    chartpng

    --

    -0.02%
  • easyJet

    chartpng

    --

    -0.54%
  • VIXX

    chartpng

    --

    -0.28%
  • Silver

    chartpng

    --

    -2.40%
Tags DirectoryView all
Table of Contents
  • 1. CFD vs. forex spot trading: why do you need to choose?
  • 2. What is a forex spot trade?
  • 3. So, what is a CFD forex trade?
  • 4. There are 2 main key benefits to using CFDs to trade forex
  • 5. So, which will suit me better? Spot trading or CFDs?
  • 6. Summing up

Related Articles

LKQ Stock Hits 52-week Low: What’s Happening with LKQ Corp?

LKQ Corporation (NASDAQ: LKQ) has recently hit a 52-week low, raising concerns among investors and market analysts.

Ghko B|1 day ago

Intel Stock (INTC) Slides 7%: How to Trade Intel Stock CFDs?

Intel Stock (INTC) Slides 7%: Intel Corporation (INTC) has long been a cornerstone of the technology sector, known for its innovations in semiconductor manufacturing.

Ghko B|1 day ago

Deckers Stock Surges Today: How to Trade DECK Stock CFDs?

Deckers Stock Surges Today: Deckers Outdoor Corporation (DECK) has recently experienced a significant surge in its stock price, drawing attention from investors and traders alike.

Ghko B|1 day ago
Markets.com Logo
google playapp storeweb tradertradingView

Contact Us

support@markets.com+12845680155

Markets

  • Forex
  • Shares
  • Commodities
  • Indices
  • Crypto
  • ETFs
  • Bonds

Trading

  • Trading Tools
  • Platform
  • Web Platform
  • App
  • TradingView
  • MT4
  • MT5
  • CFD Trading
  • CFD Asset List
  • Trading Info
  • Trading Conditions
  • Trading Hours
  • Trading Calculators
  • Economic Calendar

Learn

  • News
  • Trading Basics
  • Glossary
  • Webinars
  • Traders' Clinic
  • Education Centre

About

  • Why markets.com
  • Global Offering
  • Our Group
  • Careers
  • FAQs
  • Legal Pack
  • Safety Online
  • Complaints
  • Contact Support
  • Help Centre
  • Sitemap
  • Cookie Disclosure
  • Awards and Media

Promo

  • Gold Festival
  • Crypto Trading
  • marketsClub
  • Welcome Bonus
  • Loyal Bonus
  • Referral Bonus

Partnership

  • Affiliation
  • IB

Follow us on

  • Facebook
  • Instagram
  • Twitter
  • Youtube
  • Linkedin
  • Threads
  • Tiktok

Listed on

  • 2023 Best Trading Platform Middle East - International Business Magazine
  • 2023 Best Trading Conditions Broker - Forexing.com
  • 2023 Most Trusted Forex Broker - Forexing.com
  • 2023 Most Transparent Broker - AllForexBonus.com
  • 2024 Best Broker for Beginners, United Kingdom - Global Brands Magazine
  • 2024 Best MT4 & MT5 Trading Platform Europe - Brands Review Magazine
  • 2024 Top Research and Education Resources Asia - Global Business and Finance Magazine
  • 2024 Leading CFD Broker Africa - Brands Review Magazine
  • 2024 Best Broker For Beginners LATAM - Global Business and Finance Magazine
  • 2024 Best Mobile Trading App MENA - Brands Review Magazine
  • 2024 Best Outstanding Value Brokerage MENA - Global Business and Finance Magazine
  • 2024 Best Broker for Customer Service MENA - Global Business and Finance Magazine
LegalLegal PackCookie DisclosureSafety Online

Payment
Methods

mastercardvisanetellerskrillwire transferzotapay
The markets.com/za/ site is operated by Markets South Africa (Pty) Ltd which is a regulated by the FSCA under license no. 46860 and licensed to operate as an Over The Counter Derivatives Provider (ODP) in terms of the Financial Markets Act no.19 of 2012. Markets South Africa (Pty) Ltd is located at BOUNDARY PLACE 18 RIVONIA ROAD, ILLOVO SANDTON, JOHANNESBURG, GAUTENG, 2196, South Africa. 

High Risk Investment Warning: Trading Foreign Exchange (Forex) and Contracts For Difference (CFDs) is highly speculative, carries a high level of risk and is not appropriate for every investor. You may sustain a loss of some or all of your invested capital, therefore, you should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading on margin. Please read the full  Risk Disclosure Statement which gives you a more detailed explanation of the risks involved.

For privacy and data protection related complaints please contact us at privacy@markets.com. Please read our PRIVACY POLICY STATEMENT for more information on handling of personal data.

Markets.com operates through the following subsidiaries:

Safecap Investments Limited, which is regulated by the Cyprus Securities and Exchange Commission (“CySEC”) under license no. 092/08. Safecap is incorporated in the Republic of Cyprus under company number ΗΕ186196.

Markets International Limited is registered  in the Saint Vincent and The Grenadines (“SVG”) under the revised Laws of Saint Vincent and The Grenadines 2009, with registration number  27030 BC 2023.

Close
Close

set cookie

set cookie

We use cookies to do things like offer live chat support and show you content we think you’ll be interested in. If you’re happy with the use of cookies by markets.com, click accept.