What is CFD on Forex

 

The second most popular currency pair in the Forex market is a stock exchange instrument called CFD. Currently, CFD contracts on Forex offers to trade most brokers of the foreign exchange market. What is this tool and what its features - this is what we will talk about in this article. So, what is CFD on Forex?

 

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CFD contracts in the Forex market are contracts for the difference in prices of the underlying asset, which can act as shares of a company, a particular stock index, etc. When dealing with CFDs on Forex, you can say, do not deal with the currency, but with the stock market, but at the same time avoid unnecessary bureaucracy and take advantage of the advantages inherent in the currency market. In particular, this is the case.

 

As in the foreign exchange market, when trading CFD contracts, your broker will provide you with increased leverage - accordingly, having a very small amount in the account, you will be able to operate positions larger than it would be available to you stock market. However, it should be taken into account that you will have to pay for the leverage. After all, it represents nothing but a loan that the broker provides to buy a financial instrument. Therefore, as in the case of currency pairs, if there are open positions from your account, a certain amount for the use of this loan will be debited daily.

 

You will not have to deal with the red tape inherent in the stock market. In particular, you will be able to trade CFD contracts through a Russian broker without being a citizen of the Russian Federation or if you are a citizen of other countries. You will also be given greater leeway in the tax process.

 

Dividends. Strictly speaking, trading CFD contracts on Forex, you are not the owner of certain shares and, accordingly, are not entitled to receive dividends from the issuing company. However, most Forex brokers currently consider the size and timing of shareholders' dividends and conduct appropriate settlements with their CFD clients. That is, financially, it will most likely not matter to you whether you buy real shares of any company or whether CFDs contract to change these shares' price. Dividends or their equivalent, you will still get. 

 

At the same time, it should be considered that the stock market trader is legally protected much more than the client of the Forex broker trading CFD. After all, what are CFD contracts on Forex inherently?  This is just a bet between you and your broker about which way and how far the underlying asset price will go. Usually, bona fide brokers, selling you a certain number of CFD contracts, for example, on shares, try to buy on the stock exchange an equivalent (or as close) number of relevant shares, so as not to "play" against you. Still, to earn on the commission, you will pay. Unscrupulous brokers can behave simply like bookmakers, i.e., their profits will be formed at the expense of your loss, and vice versa, your profit will mean a loss for the brokerage organization.

 

In our opinion, bona fide brokers, who also offer quite attractive terms of trading CFD contracts, are particularly RoboForex Stocks and InstaForex. If you are interested in working in the CFD contract market, take a closer look at these organizations.

 

Thus, we can note that CFD on Forex. is a fairly interesting financial tool, allowing any trader to try his hand at the stock market without having large sums of money and not facing serious bureaucratic procedures.