There are certain similarities between CFD trading and Forex trading. The trade execution processes for both are similar, with profits available on rising/falling markets. The pricing patterns and charts for both CFD trading and Forex trading are also similar, and they take place on the OTC market. In other words, there is no central exchange or physical location required. The only cost to the trader in these instances is the spread, and there are no finance fees or commission charges. In both cases, the trader does not take physical possession of the asset, or own the underlying asset. It is a speculative trade only. The differences between Forex trading and CFD trading are stark however. For starters, CFD trading encompasses so much more than Forex. It includes currency pairs, commodities, indices and equities.
Forex is strictly limited to currency pairs trading (major pairs, minor pairs, and exotic pairs). CFDs are traded in multiple currencies, and differing values. Forex trading takes place in fixed lots. The factors that determine how currencies will move relative to one another are diverse, and typically encompass geopolitical tension, economic data releases, GDP data, NFP data, central bank decisions and so forth. With CFDs, it is largely related to supply/demand factors and trends within specific sectors. Forex trading is available in multiple formats, including binary options and traditional Forex trading. Traditional Forex trading involves the base currency and the quote currency. In a pair like the GBP/USD, the GBP is the base currency and the USD is the quote currency. The second figure indicates how much of the quote currency is required to purchase 1 unit of the base currency. Forex involves a spread, price point movements known as pips, leverage on a standard lot of 100,000 units of currency, but there are fixed options available in the form of mini lots and micro lots with 10,000 and 1000 units respectively.