To find the right CFD forex trading account you need to think about the following:
Can you trade on the currency pair you want? e.g. euro and US dollar (EUR/USD).
How small is the spread? The smaller the spread, which is measured in pips, the better.
What margin do you need to open a trade?
Which currency pairs can you trade on?
You can use this comparison to check the size of the spread and margin offered for the following currency pairs:
Euro and pound (EUR/GBP)
US dollar to Japanese yen (USD/JPY)
Pound to US dollar (GBP/USD)
Euro and US dollar (EUR/USD)
If you want to trade on a currency pair not shown above, check each broker to see if they let you trade on the pair you want before you open an account.
What is the spread?
It is the difference between the sell and buy exchange rate on a currency pair. A spread is calculated using the fourth decimal point of an exchange rate.
For example, if the sell/buy exchange rate for euro/US dollar (EUR/USD) was 1.1234/1.1236, this shows a 2 pip spread (1.1236 - 1.1234 = 0.0002).
The exception is when you trade in currency pairs that include the Japanese yen, then the second decimal point is used.
What does the margin do?
CFD trading is a leveraged investment, so you only need to put down a small percentage of the total cost of your trade. This amount is called the margin.
The margin acts as a deposit, and helps cover the cost of any losses if your trade goes against you.
CFD forex trading FAQs
What is a CFD?
A contract for difference (CFD) lets you trade on financial markets without owning the underlying asset you trade with. Find out more here.
What is forex?
It stands for foreign exchange, which lets you trade on the value of one currency growing or falling against another. Here is more on forex trading.
What are pips?
Pips are used to measure any market movement when CFD forex trading. Find out more here.
What is the spread?
It is the difference between the sell and buy price of a trade. Find out how the spread can affect your CFD trade here.