We are all aware that trading instruments or securities come in forms such as commodity futures, stocks, CFDs, Currency which is associated with Forex Trading, Metals and many more. With these things being laid on the table, traders will definitely ask which among these trading instruments offers the most promising profit? If we were to ask a financial adviser, I am certain that he would announce that it is not the multiple usage of trading instruments which give a guaranteed profit. It is the status and reliability of a broker, trading experience, self-reliance, as well as strategies and approaches to trading which matters most. Risk management should also be the main concern of traders because all trading instruments serve as a basis towards financial management schemes. This article will discuss the characteristics of two among the types of trading instruments. At the same time, it will also teach you how these instruments work and behave in the market.
A Description of CFDs
CFDs are instruments that came out later than Forex Trading. Since its beginning in the 90s, the market for CFDs continuously increases because of its promising feature for profits. Contract For Differences (CFDs) cover a wide array of features and this of course include currencies. Since CFDs are known to have a vast market coverage, it also goes to show that traders are given the opportunity towards exposure to various stock portfolios which have a very limited access to some traders. With the birth of crypto currencies, traders have also found their interest in such merchandise. In terms of the size of the contract, CFD dealers should expect variations in the elements that bind one CFD unit. One example is in the case of metal CFDs, one standard contract is equivalent to 100 ounces of metal. Price movements for CFDs however are affected by the elements that surround a particular instrument. If a trader deals with cryptocurrency CFDs, said dealer would most likely feel the effect of supply and demand for cryptocurrencies as well the number of competing cryptocurrencies towards the performance of his chosen CFDs.
Description of Forex Trading
Unlike CFDs, the FX trading industry has been existing since the ancient days. As a matter of fact, this instrument is dubbed as the most transacted merchandise in the world as it has a trading volume amounting to a total of $6.6 trillion each day. Deciding to deal with this instrument would mean being familiar to the 8 major types and 40 to 70 other kinds of currencies. These currencies can be minor,major or extoic types.The forex market is known as a straight market because it deals with currencies alone. Contract sizes for Forex trading come in a standard lot which is 10,000 currency units. Although in some cases,brokers offer a part of the standard lot. These portions come in forms like mini, micro, and nano. Market rates for FX trading are affected by macroeconomic situations and other economic factors such as employment shifts,risk sentiment, monetary policy expectations and GDPs. These factors of course vary depending on the country that owns the traded currency.
CFDs and Forex Trading are different in some aspects yet they are related to each other in many terms. These instruments both allow non-ownership of underlying assets and they both have the same manner of execution. At the same time, they also give traders an opportunity to trade on both long and short term basis. Just like what we have previously mentioned, there isn’t any exact instrument that guarantees more profit in the market. Traders options should be founded on preferences, risk profile, and ultimate trading goals.