Can someone tell me the exact difference of the two as it pertains to making money and trading all together? I get it that it's a contract vs the actual currency that one holds. 1- Why should one trade one or the other? 2- How is one risky more than the other? 3- What are the severe very little of chance of things that can happen to one that may not happen to other? 4- How are commissions and fees different on one or the other? 5- How is one harder or easier to trade than the other? 6- What can you do with Forex CFD trading that you can't do with spot currency trading? I am talking specifically about currency CFDs and not other equities.
1. Costs 2. One is not riskier than the other, they are basically the same. 3. Same on both 4. Work the costs out yourself 5. They are both the same, one is not harder/easier than the other 6. Nothing. Both will make you money if you get the direction right and lose if wrong. CFDs and spot fx are basically one. The CFD is priced off the spot, it's as simple as that.
IBKR doesn't show currency cfd commissions specifically. Asking them now... Meanwhile, which one should be cheaper? Also, isn't a contract supposed to expire at certain time? Or currency cfd is different?
They show me same pricing for both: CFD: https://www.interactivebrokers.co.uk/en/index.php?f=39753&p=cfdfx Spot: https://www.interactivebrokers.ca/en/index.php?f=45251&p=fx Sounds to me rest of brokers might charge the same as well. If this is the case, the big question remains, why even have a CFD if there is no difference between the two?
Choice. Cost of offering 2 is basically the same as offering 1, ie just a bit of programming as the CFD is auto-priced off the spot. Regulation, some countries might only allow certain products over others. Same with CFDS on DAX/ES/Dow etc. IB in Europe offer both the futures and the CFDs on each product.
Doesn't really matter when they expire as any open positions will be auto-rolled into the next. Same with Spot, if you buy at say 9am and hold past a certain time (say 6pm) the spot trade is basically rolled into the next day's Spot.
"Choice" is a word that usually makes sense to me. But what is really the choice here financially speaking? P.S. thanks for the explanations.
Some clients prefer to trade CFDs while others Spot. If 2 traders (one using Spot and the other CFDs) take 20 ticks out of the price, and their size is the same, the profit will also be the same. If there's a difference it will be down to commissions and/or overnight financing costs. Also, there might be slightly different tax structures in different countries. One country might tax Spot and CFDs differently.
Commissions are confirmed to be the same at least with IBKR. As such I am assuming margin interest is also the same for over night. Taxes are blind to types of equity traded at least in Canada. It's profit that counts not what was trades unless it's in a retirement plan of some sort. I guess there are other technical or market reason for existence of forex CFDs. Maybe liquidity? (Though forex market is the most liquid of any other).