Foreign Exchange CFDs

 Forex CFDS

Forex is the largest market in the world with daily volumes of more than 4 trillion USD. Trading Forex currencies became very popular during the past decade. Today there are millions of active Forex Traders worldwide and hundreds of Forex brokers. CFD contracts offer an easy way of trading the Foreign Exchange Market. As in the case of other asset classes, CFDs on Forex imitate the price behavior of the underlying currencies and monitoring your trades is an easy task.

 

Trading CFDs on Forex Vs ECN Forex Trading

(A) CFDs and ECN Forex Similarities

Trading CFDs on Forex is similar in many ways to trading ECN Forex, here are some important similarities:

-CFD trading and Forex trading offer high-leveraged trading

-An initial margin is used for every trade

-You may trade both market’s directions

-The trading orders and the available platforms are similar

-You can practice scalping and hedging (note that some CFD providers may not allow it)

-You can use automated systems and practice back-testing of any Expert Advisor via MT4

-You may keep your positions overnight by paying or be paid a SWAP rate

(B) CFDs and ECN Forex Differences

Here are some key differences between CFDs on Forex and ECN Forex:

-CFD trading involves a wider range of financial instruments and not only currencies

-Guaranteed Stop Losses are available only in CFD trading

-Trade sizes differ across CFDs and Forex Trading (check the following table for more details)

  ECN Forex Forex CFDs
Range of Markets  Forex Pairs  Forex Pairs  Shares, Indices and Commodities 
Trade Size  1 lot 1 CFD contract
Fixed Spreads No Yes 
Available Platforms  MetaTrader4, MetaTrader5,Mobile Traders Web-TraderMetaTrader4, MetaTrader5,Mobile Traders
Risk Management Stop-Loss Orders Stop Loss & Guaranteed Stop Loss
Demo / Practice Account Available Available
Promotions 

-Forex Rebates, find out more:

» Promotions at Forex-Rebates.com

-Welcome Bonus, find out more:

» Forex Bonus Promotions

 

 

Advantages and disadvantages of trading CFDs compared to ECN Forex trading

Here are some advantages and disadvantages when trading CFDs on Forex:

(A) Advantages:

-1- CFD brokers are able to cover the whole Forex market by offering sometimes more than 100 Forex pairs. ECN brokers offer usually 30-50 Forex pairs

-2-The minimum deposit requirement when opening a CFD account (minimum $50) is considerably lower than opening an ECN account (minimum $500)

-3- CFD brokers are creating a market within a market and therefore are able to offer Fixed Spreads (something good for beginners). ECN brokers don’t offer fixed spreads.

-4- In a single CFD Account you may trade more asset classes than Forex pairs (Stocks, Indices, Commodities, Metals, Energy). On the contrary ECN accounts offer only Forex trading plus usually Gold and Silver Trading on spot.

(B) Disadvantages:

-1- ECN brokers offer by rule narrower spreads than CFD providers. For example CFD providers offer EURUSD at 1.4 pip minimum spread while ECN brokers can offer less than 1.0 pip spread on EURUSD.

-2- The greater advantage of ECN trading compared to CFD trading is the faster order execution. Furthermore, during volatile markets some CFD providers may add re-quotes on their pricing models. On the other hand, ECN brokers do not impose re-quotes on pricing. This detail is not important for all types of traders but it is important for Forex Scalpers and Forex News Traders.

 

Basic Forex Trading Terms

Here are some basic Forex trading terms for CFD traders:

8Major Currencies: These are the 8 major currencies:

  • United States Dollar (USD)
  • Euro (EUR)
  • Japanese Yen (JPY)
  • United Kingdom Pound (GBP)
  • Switzerland Franc (CHF)
  • Canadian Dollar (CAD)
  • Australian Dollar (AUD)
  • New Zealand Dollar (NZD)

7 Major Pairs: The 7 Majors are popular currency pairs that include the US Dollar against another major currency (EURUSD, USDJPY, GBPUSD, USDCHF, USDCAD, AUDUSD, NZDUSD)

Cross Rates: Cross rates are Forex pairs that do not include the US dollar (for example EURAUD or EURGBP).   

Quotes:  The price of a currency pair is quoted to four decimal numbers, except the pairs that include the Japanese Yen.

Pips:  One increment movement in the fourth decimal place is called a pip. For example If EURUSD moves from 1.0000 to 1.0001 it has moved 1 pip.

Lot: Lot is the smallest trade size available when trading Forex.

There are three main account lot sizes:

  • Standard Lot: Worth $100,000
  • Mini Lot: Worth $10,000
  • Micro Lot: Worth $1,000

Here is an example of different lot sizes:

If you need to trade $10,000 in a standard account you place an order of 0.1 lot. If you want to trade $10,000 in a mini account you place 1 lot. If you want to trade $10,000 in a micro account you place 10 lots.

 

Comparing CFD Brokers offering Forex Trading

Here is a basic comparison between regulated CFD providers offering Forex trading. All brokers provide segregated client bank accounts and have been in the market for a period of at least 5 years. Three of the following brokers offer also ECN Forex trading (Dukascopy, FXCC and HotForex).

CFD PROVIDER

ASSETS

TRADING PLATFORMS

TRADING ACCOUNT

WEB-SITE

XM

Asset Classes:

· Forex

· Commodities

· Metals

· Energy

· Shares

· Indices

ECN TRADING: NO

50+ FOREX PAIRS

·Major Pairs

·Forex Crosses

·Exotic Pairs

■ Web Trader

■ Mirror-Trader

■ MetaTrader4

■ Mobile Traders

AUTOMATED TRADING: YES

SCALPING: YES

$50 minimum deposit

WELCOME BONUS:

30-50%

LEVERAGE:

1:500

WEB-SITE:

 

► XM Web

FXCC

Asset Classes:

· Forex

· Gold & Silver

· Indices

ECN TRADING: YES

30+ FOREX PAIRS

·Major Pairs

·Forex Crosses

·Exotic Pairs

■ MetaTrader4

■ Sirix WebTrader

■ Mobile Traders

AUTOMATED TRADING: YES

SCALPING: YES

$100 Minimum Deposit Amount

BONUS:

30-100%

LEVERAGE: 

1:300

WEB-SITE:

 

► FXCC Web

HOTFOREX

Asset Classes:

· Forex

· Commodities

· Metals

· Energy

· Shares

· Indices

ECN TRADING: YES

43 FOREX PAIRS

·Major Pairs

·Forex Crosses

·Exotic Pairs

■ MetaTrader4

■ WebTrader

■ Mobile Traders

AUTOMATED TRADING: YES

SCALPING: YES

Free VPS Server for deposits of more than $5,000

$50 Minimum Deposit Amount

WELCOME BONUS:

40-100%

LEVERAGE: 

1:1,000

WEB-SITE:

 

► HotForex Web

DUKASCOPY

Asset Classes:

·  Forex

· Commodities

· Metals

· Energy

· Indices

ECN TRADING: YES

50+ FOREX PAIRS

·Major Pairs

·Forex Crosses

·Exotic Pairs

■ Jforex Platform

■ WebTrader

■ JavaTrader

■ Mobile Traders

AUTOMATED TRADING: YES

SCALPING: YES

 

$100 Minimum Deposit Amount

WELCOME BONUS:

10% under a policy

LEVERAGE: 

1:200

WEB-SITE:

 

► Dukascopy Europe

 

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