Forex, CFDs, ETFs: What To Trade?

Today, opening a Forex brokerage account is about much more than trading currencies. With more and more brokers offering an increasingly wide range of assets beyond currency pairs, it is easy to either feel like a kid in a candy store, or completely overwhelmed. These states of mind can be unhealthy for you and your trading account, so it pays to take a closer look at what your broker – or your next Forex broker – is putting on the table.

Forex vs Futures vs CFDs

Don't be intimidated or confused by terminology that seems to have nothing to do with the assets themselves, like “spot”, “CFDs” or “futures”. What you really need to know first is what asset is underneath it. For example, you might want to buy Gold. You could buy Spot Gold, the price of which will be the same as the physical asset itself. You could buy a Gold CFD or Gold Futures, but the price fluctuations are likely to be extremely similar.

When you trade with a Forex broker, you are never going to take possession of the actual assets you buy or sell. Therefore it does not really matter much in itself whether you are buying spot or CFD or Futures. The debate about CFDs vs Forex vs Futures is really a waste of time and not worth worrying about. Spot and CFD are essentially the same thing at this level. Differences in the price movements should only occur where a CFD is leveraged itself, which is not very common. Futures are a little different as they can be less liquid and their price is influenced more by market forecasts. The important thing is that you check how much each instrument costs you to trade and decide what kinds of assets you want to be trading.

Costs of Trading

There are two things which must be checked in order to calculate how much something costs to trade. First of all, check the typical spread (the difference at any time between the buy and the sell price). Add to this spread any additional commission that is charged. Then divide that sum by the current market price. You will have a percentage. Make these calculations for a few spot Forex currency pairs, a range of commodities, bonds, ETFs, stock indices etc. Go through the entire menu that your broker offers and compare the percentages you have calculated.

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Alex Johnson 5 years ago Contributor's comment

"Therefore it does not really matter much in itself whether you are buying spot or CFD or Futures." - I thought you'd use CFDs to buy spots or futures rather than choose between CFDs and spots?