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CFD Forex Trading

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Written By
James Barra
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Written By
James Barra
James is an investment writer with a background in financial services. As a former management consultant, he has worked on major operational transformation programmes at prominent European banks. James authors, edits and fact-checks content for a series of investing websites.
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Edited By
Jemma Grist
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Edited By
Jemma Grist
Jemma is a writer, editor and fact-checker focused on retail trading and investing. Jemma brings a unique perspective to the forex, stock, and cryptocurrency markets and works across several investment websites as a researcher and broker analyst.
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Fact Checked By
William Berg
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Fact Checked By
William Berg
William contributes to several investment websites, leveraging his experience as a consultant for IPOs in the Nordic market and background providing localization for forex trading software. William has worked as a writer and fact-checker for a long row of financial publications.
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Updated
Jul 24, 2024

CFD forex trading is an increasingly popular method of investing in currencies. Many traders have added forex CFDs to their portfolios. This article will explain what CFD forex trading is, how it works and how to get started. There will also be guidance on forex CFD trading strategies and how to choose the right broker and trading platform.

Best CFD Forex Trading Brokers

Click a broker for details
  1. 1
    Interactive Brokers
    Ratings
    4.5 / 5
    3.5 / 5
    4.6 / 5
    4.3 / 5
    3.3 / 5
    3 / 5
    4.4 / 5
    4.3 / 5
    4.3 / 5
    4.5 / 5
    $0
    $100
    1:50
    FCA, SEC, FINRA, CFTC, CBI, CIRO, SFC, MAS, MNB, FINMA, AFM
    Stocks, Options, Futures, Forex, Funds, Bonds, ETFs, Mutual Funds, CFDs, Cryptocurrencies
    Trader Workstation (TWS), IBKR Desktop, GlobalTrader, Mobile, Client Portal, AlgoTrader, OmniTrader, eSignal, TradingCentral
    Cheque, ACH Transfer, Wire Transfer, Automated Customer Account Transfer Service, TransferWise, Debit Card
    USD, EUR, GBP, CAD, AUD, INR, JPY, SEK, NOK, DKK, CHF, AED, HUF
    Go To Interactive Brokers
  2. 2
    IG
    Forex trading involves risk. Losses can exceed deposits.
    Ratings
    4.9 / 5
    4 / 5
    4.5 / 5
    3.5 / 5
    4.9 / 5
    4.5 / 5
    4.9 / 5
    5 / 5
    4.6 / 5
    4 / 5
    $0
    0.01 Lots
    1:30 (Retail), 1:250 (Pro)
    FCA, ASIC, NFA, CFTC, DFSA, BaFin, MAS, FSCA, FINMA, CONSOB, AFM
    CFDs, Forex, Stocks, Indices, Commodities, ETFs, Futures, Options, Crypto, Spread Betting
    Web, ProRealTime, L2 Dealer, MT4, TradingView, AutoChartist, TradingCentral
    PayPal, Wire Transfer, Mastercard, Credit Card, Visa, Debit Card
    USD, EUR, GBP, CAD, AUD, JPY, ZAR, SEK, DKK, CHF, HKD, SGD
    Go To IG
  3. 3
    IQCent
    20% to 200% Deposit Bonus
    Ratings
    2.5 / 5
    3.3 / 5
    2.4 / 5
    4.3 / 5
    3.8 / 5
    2.5 / 5
    3 / 5
    2 / 5
    4.3 / 5
    4.1 / 5
    $250
    $0.01
    1:500
    IFMRRC
    Binary Options, CFDs, Forex, Indices, Commodities, Crypto
    Online Platform, TradingView
    Credit Card, Debit Card, Wire Transfer, Bitcoin Payments, Ethereum Payments, Visa, Mastercard
    USD, EUR
    Go To IQCent
  4. 4
    RedMars
    Ratings
    3.3 / 5
    3.5 / 5
    3.8 / 5
    3.5 / 5
    3.8 / 5
    4 / 5
    2.8 / 5
    3 / 5
    4.7 / 5
    4.6 / 5
    €250
    0.01 Lots
    1:30 (Retail), 1:500 (Pro)
    CySEC, AFM
    CFDs, Forex, Stocks, Indices, Commodities, Cryptos
    MT5
    Credit Card, Wire Transfer, Debit Card, Sticpay, FasaPay, Bitcoin Payments, Trustly, PayPal, Skrill, Neteller, Klarna, Mastercard, Visa
    USD, EUR
    Go To RedMars
  5. 5
    Capitalcore
    40% Deposit Bonus up to $2,500
    Ratings
    3.3 / 5
    3.8 / 5
    3.5 / 5
    3 / 5
    3.8 / 5
    3.5 / 5
    2.5 / 5
    3.5 / 5
    0 / 5
    0 / 5
    $10
    0.01 Lots
    1:2000
    IFSA
    Forex, Metals, Stocks, Cryptos, Futures Indices
    WebTrader, Pro
    Ethereum Payments, Mastercard, Visa, Perfect Money, Bitcoin Payments, Debit Card, Credit Card, PayPal
    USD
    Go To Capitalcore
  6. 6
    Videforex
    20% to 200% Deposit Bonus
    Ratings
    2.5 / 5
    3 / 5
    3.5 / 5
    3.3 / 5
    3.5 / 5
    4.5 / 5
    1.3 / 5
    1.3 / 5
    4.1 / 5
    4.4 / 5
    $250
    $0.01
    1:500
    Binary Options, CFDs, Forex, Indices, Commodities, Crypto
    TradingView
    Skrill, Perfect Money, Bitcoin Payments, Neteller, Credit Card, Visa, Mastercard, Ethereum Payments
    USD, EUR, GBP, AUD, RUB
    Go To Videforex
  7. 7
    xChief
    $100 No Deposit Bonus
    Ratings
    4 / 5
    3.8 / 5
    3.7 / 5
    3 / 5
    4.3 / 5
    3.5 / 5
    3.5 / 5
    3.3 / 5
    0 / 5
    0 / 5
    $10
    0.01 Lots
    1:1000
    ASIC
    CFDs, Forex, Metals, Commodities, Stocks, Indices
    MT4, MT5
    Wire Transfer, Bitcoin Payments, Credit Card, UnionPay, Skrill, Neteller, WebMoney, Perfect Money, Debit Card, Ethereum Payments, FasaPay, Volet
    USD, EUR, GBP, JPY, CHF
    Go To xChief
  8. 8
    Axofa
    10% Deposit Bonus
    Ratings
    2.8 / 5
    3.8 / 5
    3 / 5
    3 / 5
    3 / 5
    1.3 / 5
    2.5 / 5
    2.5 / 5
    0 / 5
    0 / 5
    $1
    0.01 Lots
    1:1000
    SVGFSA
    Forex, CFDs, Stocks, Indices, Commodities
    MT5
    Debit Card, Credit Card, Visa, Mastercard, Neteller, Skrill, Bitcoin Payments, Wire Transfer
    USD, IDR
    Go To Axofa
  9. 9
    Sage FX
    $1,500 trading competition
    Ratings
    2.5 / 5
    3.5 / 5
    3 / 5
    3.3 / 5
    2.5 / 5
    3 / 5
    1.3 / 5
    1.8 / 5
    0 / 5
    0 / 5
    $10
    0.01 Lots
    1:500
    Pending
    Forex, indices, cryptos
    TradeLocker
    Credit Card, Visa, Mastercard, Bitcoin Payments, Ethereum Payments
    USD, EUR, GBP, CAD, AUD
    Go To Sage FX
  10. 10
    Plexytrade
    120% Cash Welcome Bonus
    Ratings
    1.5 / 5
    2.5 / 5
    2.5 / 5
    3.3 / 5
    2.5 / 5
    3.5 / 5
    0.5 / 5
    0.5 / 5
    4.8 / 5
    4.7 / 5
    $50
    0.01
    1:2000
    CFDs, Forex, Indices, Stocks, Commodities, Crypto
    MT4, MT5
    Bitcoin Payments, Ethereum Payments
    USD, EUR
    Go To Plexytrade

Here is a summary of why we recommend these brokers:

  1. Interactive Brokers - IBKR presents an extensive range of over 100 major, minor, and exotic forex pairs, surpassing the offerings of nearly all leading alternatives, though not CMC Markets. Forex trading occurs over multiple platforms and boasts institutional-grade spreads starting from 0.1 pips and 20 complex order types, including brackets, scale, and one-cancels-all (OCA) orders.
  2. IG - IG offers an above-average suite of 80+ currency pairs on its proprietary web platform, mobile app or MetaTrader 4, with more advanced charts and forex analysis tools available on the ProRealTime software. Forex spreads are competitive based on tests, starting from 0.1 pips on majors like the EUR/USD.
  3. IQCent - IQCent traders can access CFDs or binary options on 45+ forex pairs. CFD spreads start from 0.3 pips and binary options payouts are decent up to 95%. This is competitive compared to Pocket Option, for example, offering forex payouts up to only 81%.
  4. RedMars - RedMars strongest investment category is forex with more than 50 currency pairs, from majors to minors and exotics. Spreads start from 0.0 pips, catering to active currency traders, and leverage can reach 1:500. However, there are no forex heatmaps or research tools to support aspiring forex traders.
  5. Capitalcore - Capitalcore offers a modest selection of around 35 currency pairs, which is very limited compared to CMC Markets' 300+ pairs. Spreads are lowest on the VIP account (0.4 pips on EUR/USD), but become less competitive in Classic and Silver accounts (1.5 pips on EUR/USD), and there aren't any zero spreads.
  6. Videforex - Videforex offers trading on 35 currency pairs through leveraged CFDs with spreads from 0.1 pips. Alternatively, traders can use binaries to speculate on upward/downward price movements with payouts up to 98%. Integrated technical analysis, economic calendars, and market news, all available within the platform, help support FX trading decisions.
  7. xChief - ForexChief supports spot foreign exchange trading on all account types for 40+ major, minor and exotic currency pairs. Trading takes place on the leading MT4 and MT5 platforms, which offer dozens of in-built technical tools for short-term forex strategies.
  8. Axofa - Axofa offers a decent range of 50+ forex pairs with raw spreads from 0.0 pips. Very high leverage up to 1:1000 and commission-free forex trading is available. With that said, the broker is not particularly transparent when it comes to account conditions and fees.
  9. Sage FX - Trade 7 major, 21 minor and 29 exotic forex pairs with high leverage and a choice between STP or ECN accounts. Support is available around the clock and the TradeLocker forex software is provided.
  10. Plexytrade - Plexytrade presents major, minor, and exotic forex pairs for trading, with leverage reaching 1:2000 and raw spreads starting from 0.0 - an enticing proposition for advanced traders seeking gains from minor price shifts. However, the downside lies in the limited selection, with only 41 currency pairs available, significantly fewer than the 100+ forex assets at IG.

CFD Forex Trading Comparison

CFD Forex Trading Comparison
Broker CFD Leverage Minimum Deposit Minimum Trade Regulators
Interactive Brokers logo
1:50 $0 $100 FCA, SEC, FINRA, CFTC, CBI, CIRO, SFC, MAS, MNB, FINMA, AFM
IG logo
1:30 (Retail), 1:250 (Pro) $0 0.01 Lots FCA, ASIC, NFA, CFTC, DFSA, BaFin, MAS, FSCA, FINMA, CONSOB, AFM
IQCent logo
1:500 $250 $0.01 IFMRRC
RedMars logo
1:30 (Retail), 1:500 (Pro) €250 0.01 Lots CySEC, AFM
Capitalcore logo
1:2000 $10 0.01 Lots IFSA
Videforex logo
1:500 $250 $0.01 -
xChief logo
1:1000 $10 0.01 Lots ASIC
Axofa logo
1:1000 $1 0.01 Lots SVGFSA
Sage FX logo
1:500 $10 0.01 Lots Pending
Plexytrade logo
1:2000 $50 0.01 -

Interactive Brokers

"Interactive Brokers is one of the best brokers for advanced day traders, providing powerful charting platforms, real-time data, and customizable layouts, notably through the new IBKR Desktop application. Its superb pricing and advanced order options also make it highly attractive for day traders, while its diverse range of equities is still among the best in the industry."

Christian Harris, Reviewer

Interactive Brokers Quick Facts

FTSE Spread0.005% (£1 Min)
GBPUSD Spread0.08-0.20 bps x trade value
Stocks Spread0.003
Leverage1:50
RegulatorFCA, SEC, FINRA, CFTC, CBI, CIRO, SFC, MAS, MNB, FINMA, AFM
PlatformsTrader Workstation (TWS), IBKR Desktop, GlobalTrader, Mobile, Client Portal, AlgoTrader, OmniTrader, eSignal, TradingCentral
EURUSD Spread0.08-0.20 bps x trade value
EURGBP Spread0.08-0.20 bps x trade value
Total Assets100+
Account CurrenciesUSD, EUR, GBP, CAD, AUD, INR, JPY, SEK, NOK, DKK, CHF, AED, HUF

Pros

  • The new IBKR Desktop platform takes the best of TWS while adding bespoke tools like Option Lattice and Screeners with MultiSort to create a genuinely impressive trading experience for day traders at every level.
  • IBKR continues to deliver unmatched access to global stocks with tens of thousands of equities available from 100+ market centres in 24 countries, most recently the Saudi Stock Exchange.
  • IBKR is one of the most respected and trusted brokerages and is regulated by top-tier authorities, so you can have confidence in the integrity and security of your trading account.

Cons

  • Support can be slow and frustrating based on tests, so you might find it challenging to reach customer service representatives promptly or encounter delays in resolving issues.
  • IBKR provides a wide range of research tools, but their distribution across trading platforms and the web-based 'Account Management' page lacks consistency, leading to a confusing user experience.
  • You can only have one active session per account, so you can’t have your desktop program and mobile app running simultaneously, making for a sometimes frustrating trading experience.
Visit Interactive Brokers
Interactive Brokers Review

IG

"IG continues to provide a comprehensive package with an intuitive web platform, best-in-class education for beginners, advanced charting tools bolstered by its recent TradingView integration, real-time data, and fast execution speeds for experienced day traders."

Christian Harris, Reviewer

IG Quick Facts

FTSE Spread1.0
GBPUSD Spread0.9
Stocks Spread0.02
Leverage1:30 (Retail), 1:250 (Pro)
RegulatorFCA, ASIC, NFA, CFTC, DFSA, BaFin, MAS, FSCA, FINMA, CONSOB, AFM
PlatformsWeb, ProRealTime, L2 Dealer, MT4, TradingView, AutoChartist, TradingCentral
EURUSD Spread0.8
EURGBP Spread0.9
Total Assets80+
Account CurrenciesUSD, EUR, GBP, CAD, AUD, JPY, ZAR, SEK, DKK, CHF, HKD, SGD

Pros

  • The ProRealTime advanced charting platform is free as long as certain modest monthly trading activity requirements are met.
  • As a well-established broker, IG operates under strict regulatory guidelines in multiple jurisdictions, maintaining a high level of trust.
  • IG offers an extensive collection of professional and engaging educational resources, including webinars, articles, and analysis.

Cons

  • While there is negative balance protection in the UK and EU, there is no account protection or guaranteed stop losses for US clients.
  • IG has discontinued its swap-free account, reducing its appeal to Islamic traders.
  • Stock and CFD spreads still trail the cheapest brokers like CMC Markets based on tests.
Visit IG
IG Review

IQCent

"IQCent will appeal to day traders looking for a straightforward binary options and CFD trading platform with low fees, a range of accounts, and copy trading. Getting started takes less than 1 minute and a $250 deposit. "

Jemma Grist, Reviewer

IQCent Quick Facts

Bonus Offer20% to 200% Deposit Bonus
FTSE Spread1.4
GBPUSD Spread0.8
Stocks SpreadN/A
Leverage1:500
RegulatorIFMRRC
PlatformsOnline Platform, TradingView
EURUSD Spread0.3
EURGBP Spread0.8
Total Assets49
Account CurrenciesUSD, EUR

Pros

  • The broker's 24/7 customer support is fast and reliable, responding within 1 minute during tests
  • There's an accessible $0.01 minimum stake for new day traders with a small budget
  • CFD trading fees are competitive based on tests, including 0.7 pips on major forex pairs such as EUR/USD

Cons

  • There's no automated trading support for algo traders
  • IQCent charges a punitive $10 monthly inactivity fee if you fail to place at least 1 trade per month
  • IQCent trails binary brokers like Quotex with its narrow investment offering of around 100 assets with no stocks
Visit IQCent
IQCent Review

RedMars

"RedMars is the best fit for experienced day traders familiar with the MetaTrader 5 platform and based in the EU, where the broker is authorized by the CySEC. However, the threadbare education and research tools make it unsuitable for beginners."

Christian Harris, Reviewer

RedMars Quick Facts

FTSE Spread15
GBPUSD Spread0.7
Stocks SpreadVariable
Leverage1:30 (Retail), 1:500 (Pro)
RegulatorCySEC, AFM
PlatformsMT5
EURUSD Spread0.7
EURGBP Spread1.1
Total Assets50+
Account CurrenciesUSD, EUR

Pros

  • The broker is one of a limited number of firms to offer an account specially designed for VIPs with premium support and invites to exclusive events
  • RedMars offers one of the best platforms for day trading, MT5, hosting 21 timeframes, dozens of analytical tools, flexible templates and algo trading
  • Getting started on RedMars is incredibly easy - you can be up and running in just a few minutes based on tests

Cons

  • With just 300 instruments, RedMars offers a narrow trading environment, particularly compared to category leaders like BlackBull Markets which offers 26,000 assets
  • RedMars falls short for newer traders, with little in the way of education, no beginner-friendly platform, a steep minimum deposit, and inadequate support during testing
  • The no-frills trading environment offers little beyond the basics, with no Islamic account, PAMM account or copy trading.
Visit RedMars
RedMars Review

Capitalcore

"The major selling points of Capitalcore are its high leverage options up to 1:2000 and zero commission or swap fees. However, its weak regulatory oversight from the IFSA and non-existent education place it far behind the top brokers."

Christian Harris, Reviewer

Capitalcore Quick Facts

Bonus Offer40% Deposit Bonus up to $2,500
FTSE Spread25
GBPUSD Spread0.5
Stocks Spread1.5 (Apple)
Leverage1:2000
RegulatorIFSA
PlatformsWebTrader, Pro
EURUSD Spread0.4
EURGBP Spread0.5
Total Assets35+
Account CurrenciesUSD

Pros

  • The Capitalcore platform provides comprehensive charting tools and a wide range of 150+ technical indicators, ideal for detailed market analysis.
  • The support team are available 24/7 and responded within minutes during testing with helpful responses.
  • Unlike most brokers, Capitalcore offers an unlimited demo account that takes under 5 minutes to open.

Cons

  • The web platform was inconsistent during testing, with occasional technical glitches that meant the trading platform wouldn’t load.
  • Platform support is limited to proprietary software, so there's no integration with the market-leading MetaTrader or cTrader, which offer built-in economic news and support automated trading.
  • Capitalcore’s threadbare education and research seriously trail category leaders like IG, making it less suitable for aspiring traders.
Visit Capitalcore
Capitalcore Review

Videforex

"Videforex will serve traders looking for a no-frills, easy-to-use platform to speculate on the direction of popular financial markets through binaries. With a sign-up process that takes a matter of minutes and a web-accessible platform, getting started is a breeze. "

William Berg, Reviewer

Videforex Quick Facts

Bonus Offer20% to 200% Deposit Bonus
FTSE SpreadFloating from 0.2
GBPUSD Spread0.1
Stocks SpreadNA
Leverage1:500
PlatformsTradingView
EURUSD Spread0.1
EURGBP Spread0.1
Total Assets35+
Account CurrenciesUSD, EUR, GBP, AUD, RUB

Pros

  • Traders can earn up to 98% payouts on 100+ assets with the broker’s binary options, bringing it in line with competitors like IQCent.
  • Videforex is one of the few brokers with 24/7 multilingual video support, providing comprehensive assistance for active traders.
  • Videforex regularly runs trading contests, offering practice opportunities and cash prizes to beginners and experienced traders, with position sizes from just ¢0.01.

Cons

  • The client terminal needs improvements based on our latest tests, sporting sometimes slow and unresponsive widgets which could dampen the experience for day traders.
  • The absence of any educational tools is a serious drawback for newer traders who can find blogs, videos and live trading sessions at category leaders.
  • Videforex lacks authorization from a trusted regulator, meaning traders may receive little to zero safeguards like segregated client accounts.
Visit Videforex
Videforex Review

xChief

"xChief continues to prove popular with investors looking to trade highly leveraged CFDs on the popular MetaTrader platforms. The broker's rebate scheme and investment accounts will particularly appeal to seasoned traders. However, the lack of top-tier regulatory oversight is a major drawback."

William Berg, Reviewer

xChief Quick Facts

Bonus Offer$100 No Deposit Bonus
FTSE Spread70
GBPUSD Spread0.9
Stocks Spread50
Leverage1:1000
RegulatorASIC
PlatformsMT4, MT5
EURUSD Spread0.4
EURGBP Spread0.9
Total Assets40
Account CurrenciesUSD, EUR, GBP, JPY, CHF

Pros

  • xChief delivers a high-quality day trading environment via the MT4 and MT5 platforms, with market-leading charts, indicators and tools
  • The broker offers a turnover rebate scheme geared towards active investors, as well as trading credits and several other occasional bonuses
  • The low minimum deposit of $10 will appeal to beginners, as well as the beginners’ guides in the Library

Cons

  • Fees and minimums are imposed on most withdrawal methods, including a €60 minimum for SWIFT bank transfers
  • xChief is an offshore broker with weak regulatory oversight from the VFSC, so traders will receive limited safeguards
  • The Classic+ and Cent accounts provide access to fewer instruments than the other account types, at 50+ and 35+, respectively
Visit xChief
xChief Review

Axofa

"Axofa could be a good option for clients looking for social trading features alongside the MT5 platform. The low entry requirements and ECN spreads are particularly promising, but the lack of transparency and respected regulatory oversight raises security concerns."

William Berg, Reviewer

Axofa Quick Facts

Bonus Offer10% Deposit Bonus
FTSE SpreadNA
GBPUSD SpreadFrom 1.6 pips
Stocks SpreadNA
Leverage1:1000
RegulatorSVGFSA
PlatformsMT5
EURUSD SpreadFrom 1.6 pips
EURGBP SpreadFrom 1.6 pips
Total Assets10+
Account CurrenciesUSD, IDR

Pros

  • There's a proprietary social/copy trading service for beginners looking to follow successful strategies and for experienced traders looking to sell their strategies
  • Axofa offers the MetaTrader 5 platform which will particularly serve intermediate to experienced traders looking for advanced charting tools
  • Low ECN spreads are available from 0.0 pips, plus reasonable commissions at $3.50 per side

Cons

  • Our team found inconsistencies between international subsidiaries and website information
  • There is limited verifiable information about the broker’s owners and background
  • There is a lack of transparency around pricing and account conditions, which significantly reduces the trust score
Visit Axofa
Axofa Review

Sage FX

"Sage FX will suit forex traders looking for high leverage and ECN spreads. The broker's prop trading service will also appeal to users looking for funded accounts with up to $200K available."

Tobias Robinson, Reviewer

Sage FX Quick Facts

Bonus Offer$1,500 trading competition
FTSE Spread5.0
GBPUSD Spread0.9
Stocks SpreadN/A
Leverage1:500
RegulatorPending
PlatformsTradeLocker
EURUSD Spread0.9
EURGBP Spread2.5
Total Assets57
Account CurrenciesUSD, EUR, GBP, CAD, AUD

Pros

  • High leverage up to 1:500
  • Fast withdrawal processing
  • Ability to deposit and withdraw via Bitcoin

Cons

  • Not regulated by any reputable body
  • Lacks educational resources and other extra features
  • Relatively narrow range of asset classes
Visit Sage FX
Sage FX Review

Plexytrade

"Plexytrade is a newcomer in the brokerage scene with attention-grabbing features like 1:2000 leverage, zero spreads on select instruments and fast execution speeds of less than 46 milliseconds. However, the absence of regulation is a significant concern, while the non-existent research and educational tools place it far behind industry frontrunners."

Christian Harris, Reviewer

Plexytrade Quick Facts

Bonus Offer120% Cash Welcome Bonus
FTSE Spread0.8
GBPUSD Spread0.8
Stocks Spread5
Leverage1:2000
PlatformsMT4, MT5
EURUSD Spread0.7
EURGBP Spread1.1
Total Assets40+
Account CurrenciesUSD, EUR

Pros

  • There are various VPS packages starting from $50 per month, but they become complimentary once specific deposit thresholds are reached.
  • Plexytrade accommodates a range of trading methods and short-term strategies, including scalping, hedging, and automated trading.
  • Plexytrade offers among the highest leverage we’ve seen, up to 1:2000, catering to advanced traders willing to forego regulatory protections.

Cons

  • Plexytrade lacks regulation in major jurisdictions, significantly increasing the risks of opening an account and depositing funds.
  • With around 100 instruments, Plexytrade restricts the flexibility of investors who prefer to trade across various assets, especially compared to Blackbull with its 26,000 securities.
  • There are no social or copy trading features for inexperienced traders to replicate the trades of more experienced investors, trailing category leaders like eToro.
Visit Plexytrade
Plexytrade Review

What Is CFD Forex Trading?

A contract for difference (CFD) is a contract between a buyer (trader) and a seller (broker) that stipulates that the difference between the current value of an asset and its value at the end of the contract will be paid to one of the parties at the expiry. CFDs allow investors to profit, or lose, from price movements without having to own the underlying asset.

How CFD Forex Trading Works

Essentially, CFD forex trading entails opening trades based on whether the value of one currency will rise or fall against another.

The investor can speculate on either upward or downward movement in the value of the currency. If they think the value of the base currency will rise, they will open a long position. If the value does increase, the net difference between the purchase and sale prices will be the net result of the trade (either profit or loss).

Similarly, the trader could believe the value will drop and open a short position. In this case, the profit or loss is the net result of the value between the initial price and the final value.

A good way to understand CFD forex trading is to look at an example, such as the GBP/USD forex pair. Consider that the ask price is 1.20720 and an investor believes the value of the pound (GBP) will rise against the US dollar. That investor purchases 1,000 pips of GBP.

Two weeks pass and the value of the GBP has risen as the investor predicted, the bid price is now 1.22220.

The trader is paid the difference between the initial ask price and the final bid price, multiplied by the size of the trade. That is 0.015 multiplied by 1000, which equals a £15 profit.

CFD Forex Trading Vs Spot Forex Trading

Forex trading can be conducted with or without CFDs, but what difference does it make?

In non-CFD (spot) forex trading, traders still speculate on the value of a currency rising or falling against its pair.

However, they then directly buy or sell the currency, depending on their position. This means the investor owns the currency itself and more money is required to buy the currency. Profit or loss is then finalised by directly selling the currency when the price has risen or fallen.

In CFD forex trading, you are only speculating on the value rising, without buying and owning the currency. CFD brokers usually require a much smaller margin (around 5%) and any profit or loss comes from the spread between the initial currency value and the final value of the currency.

Where You Can Trade Forex CFDs

CFD regulations vary in different countries. CFD trading, forex or not, is banned in the US and Brazil. However, many other major trading countries allow these instruments. Countries like the United Kingdom, Germany, Switzerland, Spain and Hong Kong all allow forex and CFD forex trading in over-the-counter (OTC) markets.

Strategies

There are a few different trading strategies you can adopt when trading forex CFDs. We will run through four of the most popular below.

Day Trading

This is the practice of making short-term trades on the same day. Typically, the CFD forex trading position is held for anywhere from a couple of minutes to several hours before being sold, though it is not generally held overnight. The premise involves taking advantage of volatile forex pairs and requires high levels of concentration, you need to constantly monitor the market and be ready to make quick decisions.

Scalping

This is similar to day trading, except that positions are held open for minutes at a time and closed as soon as it becomes profitable. Again, this involves constant monitoring of the market.

The strategy hopes to minimise risk by reducing the opportunity for a reversal and profits are made by the aggregation of many low-profit, high volume trades. Margin trading is often used to facilitate scalping, though you should be careful as one large loss can erode a significant portion of your progress.

Position Trading

Position traders don’t take short-term approaches like day traders and scalpers. Instead, a position trader will buy CFD contracts and hold them for a few days or weeks. This is a strategy that doesn’t require such constant monitoring of the market but it can need perseverance if there are market dips.

Swing Trading

Swing trading is suitable in more volatile markets than position trading. The emphasis is on looking for strong price swings over one or several days. The strategy entails identifying short-term trends and waiting for signs of a reversal, trading against the trend once there are some. Swing trading may require that CFD forex positions be held overnight, incurring additional interest fees.

Pros Of CFD Forex Trading

Cons Of CFD Forex Trading

How To Start CFD Forex Trading

This step-by-step guide will help you get started trading forex CFDs:

Choose A Broker

The first thing to do is select the best CFD forex trading brokerage for you. Low spreads and financing fees are two basic things to look out for, along with trading platforms, asset ranges and customer service.

There are many brokers, both regulated and unregulated. Forex and CFD trading with IG Group, Oanda or XTB are popular choices. Additionally, more options, like CFDs on forex, stocks, indices, oil and gold are available with XM.

Those investors looking for mobile trading may want to consider Trade Interceptor and xStation, both of which offer APK and iOS trading apps.

Select An Asset

Each forex pair comes with a different level of risk. Major pairs like USD/GBP are relatively stable and demonstrate strong liquidity. Exotic pairs such as GBP/HKD are more volatile and have more dramatic price movements, giving more potential for those that know what they are doing.

Open A Position

Once you have selected an asset, you can open a CFD forex trading position by taking out a contract. Be sure to check the leverage ratio and ensure you have the funds to cover any potential losses. Also, look at implementing stop loss and take profit orders to limit risk.

Monitor & Close Position

Keep an eye on the price and trends for the currency pair you have a position open on. Many platforms will have a mobile app for you to use on the go. Consider any fees when looking to leave the position open overnight. As soon as the price is right, close your position and finalise the trade.

Trading Tips

This list of tips will boost your CFD forex trading skills:

Final Word

CFD forex trading is a way to speculate on the foreign exchange markets without physically converting currencies. Investors can make use of high leverage rates and simpler fee structures than their spot forex counterparts. However, it is important to implement robust risk management systems and carry out detailed research to guide your strategy. See our list of recommended CFD forex brokers and follow the guide above to get started.

FAQs

Why Is CFD Forex Trading Illegal In The US?

Part of the reason is that they are an over-the-counter (OTC) product. This means they don’t pass through regulated exchanges and hence the US have banned them.

CFD forex trading is legal in the UK, whether you use a regulated broker or not. However, Financial Conduct Authority (FCA) regulated brokers have several restrictions and rules they must abide by to protect their clients, including segregating bank accounts.

Is CFD Forex Trading Taxable In The UK?

Yes, CFD forex trading is taxable in the UK. While you won’t pay stamp duty, profits are eligible for capital gains tax (CGT), unlike spread betting.

What Is The Difference Between CFD Forex Trading And Spread Betting?

Spread betting is very similar to CFD forex trading in that they are both forms of financial speculation using derivatives products.

However, where CFDs can be closed whenever the investor wishes, spread bets have a fixed expiration date (though they can be exited before this). Moreover, CFDs are charged commissions and fees, with taxable profits, where spread betting brokers make money from spread markups and profits are tax-free.

What Is The Difference Between CFD And Forex Trading Vs Share Trading?

CFD forex trading is very different from share trading, be it a spot or CFD itself. The main difference is the underlying assets, with forex CFDs based upon the performance of a pair of currencies, where shares are based on company stock prices.