Forex CFD Trading

Forex CFD trading allows investors to speculate on price movements of foreign currencies without physically exchanging money. Traders, therefore, do not own the actual currency and are simply betting on whether the price of one currency will go up or down against another. Although CFDs cover a wide range of financial instruments, this guide will focus on the forex market, providing an overview of how it works and discussing various strategies and approaches, as well as exploring the differences and similarities with spread betting.

Best Forex CFD Trading Brokers

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    AvaTrade offers 50+ currency pairs with competitive spreads from 0.9 pips and zero commissions. You can trade majors, minors and exotics around the clock on industry-leading platforms, including MT4 and MT5. Traders can also access beginner-friendly trading tools and comprehensive forex education.

  2. XTB

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    XTB provides access to 70+ currency pairs with low spreads averaging around 1 pip on majors. The xStation platform offers an intuitive environment for forex traders with an excellent charting package encompassing 30+ indicators, plus a range of order types, catering to various strategies and risk management techniques.

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    CMC presents an extensive array of 300+ forex pairs characterized by tight spreads and rapid executions, surpassing the offerings of many competitors in terms of currency diversity. Forex indices also present a fairly unique and holistic way to speculate on the value of key currencies like the USD, EUR and GBP.

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    Eightcap offers 50+ currency pairs in line with the industry average but trailing category leaders like CMC Markets with its 300+ currency pairs. However, Eightcap stands out with institutional-level spreads from 0.0 pips on major pairs like the EUR/USD, alongside low $3.50/side commissions. The broker also offers rich forex data to inform trading decisions, including key fundamentals, bullish/bearish indicators and a calendar that tracks key events in the foreign exchange market.

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    FXCC's key selling point is its forex trading conditions. ECN spreads come in as low as 0.0 pips during peak trading hours, while it supports a wider range of currency pairs than the majority of rivals with over 70 forex assets. Additionally, you have access to MT4, which was built specifically for forex trading and excels for its charting tools.

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    Trade on 60+ forex pairs with no commission and competitively tight spreads from 0.6 on major pairs such as EUR/USD. This is a good selection of forex pairs and excellent pricing for commission-free trading, well below the industry average.

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    IC Markets maintains its commitment to providing exceptionally tight 0.0-pip forex spreads on major currency pairs such as EUR/USD. This makes it an excellent option if you are seeking superior execution, with an average of 35 milliseconds. Additionally, if you are a high-volume trader, you can benefit from rebates of up to $2.50 per forex lot.

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    Pepperstone offers ultra-competitive forex spreads averaging 0.12 pips on EUR/USD in the Razor account, accompanied by a diverse portfolio comprising 100+ currency pairs - an extensive selection surpassing most competitors. Additionally, Pepperstone distinguishes itself by offering three currency indices (USDX, EURX, JPYX), not commonly found among alternative platforms. Pepperstone has now won our annual 'Best Forex Broker' award twice.

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    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.

  10. XM

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    XM offers ultra low spreads across a wide range of forex assets with no re-quotes or hidden charges. Over 50 currency pairs are available, which is above the market average and is in line with one of our top award-winners, AvaTrade.

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    Trade a wide selection of 80+ currency pairs with spreads from 0.5 pips and industry-favorite platforms. City Index has 40+ years experience in forex trading with liquidity from tier-one banks.

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    RoboForex offers trading on 30+ currency pairs, trailing category leaders like Pepperstone with its 90+ forex assets. That said, the Prime and ECN accounts feature competitive average spreads of 0.1 pips on the EUR/USD. Additionally, with a minimum investment of $100, traders can utilize the CopyFX system to replicate the strategies of seasoned currency traders.

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    DNA Markets continues to deliver an excellent environment for forex traders with 50+ currency pairs and low spreads from 0.0 pips on the EUR/USD during tests. The MetaTrader 4 platform, available on desktop, web and mobile, was also designed specifically for forex trading.

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    FOREX.com continues to uphold its stature as a premier FX broker, offering over 80 currency pairs and boasting some of the most competitive fees in the industry. With EUR/USD spreads dipping as low as 0.0 and $5 commission per $100k, it stands out. Moreover, its SMART Signals help to identify price behaviors across numerous major currency markets.

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    An above-average selection of 55 currencies are available with reasonable spreads averaging 0.9 pips on EUR/USD during peak hours. Aspiring traders can continuously hone their forex strategies by switching between demo mode and their live account any time, with full access to the broker's 100+ technical indicators.

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    InstaForex's range of 100+ currency pairs is among the largest we have seen. ECN spreads are also available from 0.0 pips with zero commissions. Minimum deposits start from $1 making the broker accessible for beginners. You can also access market-leading forex analysis and insights.

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    Trade Nation offers over 30 of the most popular forex pairs with variable spreads. Traders can access a slick proprietary platform or MetaTrader 4, with real-time forex market updates and insights via 'Smart News'.

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    OANDA offers 68 currency pairs, which is above the industry average. You can speculate on majors, minors and exotics, with spreads from 0.8 pips on popular pairs. There are no commissions and leverage is available up to 1:200. Average execution speeds are fast based on tests, at 12 milliseconds.

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    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.

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    BlackBull offers 64 forex pairs with very competitive pricing through its ECN accounts, with the standard commission-free spread starting from 0.8 and spreads with commission starting from zero. The broker supports diverse trading platforms including MT4 and MT5, and provides leverage up to 1:500.

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    Vantage offers 55+ currency pairs - above the industry average, so experienced traders can explore plenty of opportunities. Vantage's deep liquidity pool provides forex spreads from 0.0 pips in the ECN account, lower than many alternatives. There are also no commissions, deposit fees or hidden charges.

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    FxPro offers 70+ currency pairs with ultra-fast execution speeds and tight spreads from 0.46 pips on EUR/USD. The range of forex assets outranks many rivals, including our award winner, AvaTrade. Various short-term forex strategies are permitted, including EA trading and hedging.

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    Plus500 provides forex trading through CFDs, featuring narrow spreads across an impressive selection of over 60 currency pairs. During testing, spreads came in as tight as 0.6 pips on the EUR/USD, which is notably lower than many alternatives.

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    Fusion Markets offers an excellent selection of 90+ currency pairs, providing a range of short-term trading opportunities. It continues to excel for its ultra-tight spreads from 0.0 pips and exceptionally low commissions of $2.25 per side. You also get access to leading forex software in MetaTrader 4.

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    easyMarkets continues to offer 60+ forex pairs including majors, minors and a selection of exotics, with fixed spreads from 1.8 pips or variable spreads from 0.8 pips. FX traders can access advanced trading software in MetaTrader, as well as very high leverage up to 1:2000.

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    Speculate on popular currency pairs with flexible leverage up to 1:500 and zero-pip spreads in the GO Plus account. Commission-free trading is available with micro, mini and standard forex contract sizes.

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    NordFX offers a modest range of 33 major and minor forex pairs. Disappointingly, there are no exotic pairs, though traders do benefit from tight spreads from 0.0 pips and low commissions from 0.0035% per side.

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    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%.

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    Markets.com offers 43 major, minor and exotic currency pairs. The range is around the industry average, though spreads are fairly competitive, starting from 0.6 pips for EUR/USD. There’s also an excellent range of tools and education, including forex calculators and trading videos.

  30. Axi

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    Axi continues to offer a strong selection of 70+ currency pairs - more than many top brokers including award-winner AvaTrade, with only 50+. There are no restrictions on trading strategies including algo trading and scalping, which will serve both short-term and long-term traders.

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    You can go long or short on over 50 forex pairs from majors to exotics, with competitive spreads as low as 0.1 pips. The broker offers the leading charting software, MetaTrader 4, which delivers a host of advanced features, including 9 timeframes and over 30 indicators.

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    VT Markets offers an average selection of 40+ forex pairs with up to 1:500 leverage. Forex spreads in the ECN account are highly competitive, starting from 0.0 pips, although the 1.2-pip minimum quotes in the Standard account are a little higher than the likes of Pepperstone or IC Markets.

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    I’m happy with Tradeview’s strong range of 60+ currency pairs spanning majors, minors and exotics with competitive spreads from 0 pips in the $1000 ILC account. Traders can choose from several platforms, but I was particularly impressed with the feature-rich Currenex platform which is designed specifically for currency trading.

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    PrimeXBT offers 50 forex pairs, which is above the industry average and covers a good range of majors, minors and exotics. Traders can enjoy trading via margin with zero commissions. Additionally, the broker’s copy trading service allows you to explore various currency trading strategies.

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    FXCM offers an average range of 40+ currency pairs, although there are no commissions and spreads are competitive from 0.78 pips for EUR/USD. The broker also offers 3 forex baskets covering USD, Yen and emerging markets benchmarks.

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    FXDD continues to offer a leading selection of 90+ currency pairs with ECN pricing. Spreads are decent, coming in at 0.4 pips for EUR/USD during testing. That said, these quotes aren’t as narrow as top competitors like Pepperstone.

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    FXTrading clients can access 70+ forex pairs with high leverage up to 1:500, fast execution averaging 80ms, excellent liquidity and spreads from zero. A good selection of minors and exotics are available as well as all the majors. New users can start trading forex in 4 easy steps.

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    M4Markets offers 45+ currencies with zero pip spreads. The low latency and 30-millisecond execution speeds makes the broker a decent choice for forex traders. Additionally, there are no restrictions on trading strategies, including scalping.

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    ThinkMarkets offers 46 currency pairs, which is around the industry average. Forex traders can benefit from tight 0.0-pip spreads for EUR/USD during peak market hours. Additionally, the ThinkTrader proprietary platform offers an impressive 125+ technical indicators - ideal for complex forex strategies.

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    As well as a competitive selection of 55+ forex pairs, traders can access high leverage up to 1:300. You can also enjoy advanced analysis from Trading Central with easy integration into MetaTrader 4.

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    Trade 50+ forex pairs via the MetaTrader 4 and MetaTrader 5 platforms with leverage up to 1:500, immediate execution, deep liquidity and tight spreads.

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    IronFX continues to offer a strong selection of 80 currency pairs. You can trade through the market-leading MT4 platform with a range of forex market research tools. That said, commission charges in the zero-spread accounts are high, starting from $13.50 per lot.

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    Ingot Brokers offers forex trading on a modest suite of 30+ currency pairs with raw spreads on the MT5 platform. There are also no restrictions on short-term trading strategies, including hedging, scalping and the use of Expert Advisors (EAs).

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    FinPros offers 80+ forex pairs, which is one of the more diverse offerings available. Traders benefit from ultra-low latency, MT5 support and very tight spreads and low commissions on the RAW+ account.

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    Scope Markets offers 40+ major, minor and exotic currency pairs. Although the range is average, experienced traders can access very high leverage up to 1:2000. Additionally, the broker’s proprietary terminal delivers advanced analysis tools, including a live forex heatmap.

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    4xCube offers 60+ currency pairs with competitive trading conditions. We like that all trading strategies are permitted including scalping and hedging.

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    With 60+ currency pairs available, Dukascopy offers enough majors, minors and exotics to keep most forex traders happy. The broker also offers high leverage up to 1:100 – a good amount to see from a reputable and regulated broker. Currency traders have access to excellent software, including MT4 and JForex.

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    Trade 49 major, minor and exotic currency pairs with fixed spreads or ECN pricing with no dealing desk intervention and a low starting deposit. You can analyze the currency markets using the broker's in-house trading platform.

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    Trade 35 major, minor and exotic forex pairs through CFDs with floating spreads from 0.1 pips. Alternatively, binary options allow you to speculate on rising and falling prices with a fixed stake and payout.

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    Rock Global clients can access 50+ currency pairs via CFDs with leverage up to 1:500, world class liquidity and fast execution on the MT4 or TWS platforms. The tight spreads from 0.9 with no commission are a particularly attractive feature.

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    FXTM offers a strong range of 60+ currency pairs - more than many competitors including AvaTrade. There’s also 6 currency indices for traders looking to diversify their forex portfolios. The brand’s ECN account offers competitively low spreads from 0 pips, with equally low commissions up to $2 per lot.

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    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.

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    Kwakol Markets offers a wider range of forex pairs than most competitors, with 90+ assets available. Users get fast execution speeds and competitive spreads through the ECN model. On the negative side, not all currency pairs are available on MT4.

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    Trade a small selection of 25 major and minor pairs. Spreads from zero on the pro account, micro-lot trading, and very high leverage make up for the limited range of currencies. The MetaTrader software is also a well-regarded platform for forex trading.

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    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.

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    Focus Option offers 22 forex pairs tradeable via binary options, including a selection of majors and minors. FX pairs are also available to trade with margin on Focus Option's mobile app, which offers high leverage up to 1:50 and spreads from 1 pip.

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    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.

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    OspreyFX offers more than 50 major, minor and exotic currency pairs. Spreads start from just 0.1 pips on the EUR/USD and the broker provides a suite of forex trading education for beginners, including partnering with Forex Squad.

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    Errante traders can access 50+ forex pairs with leverage up to 1:500 (location dependant). The broker offers fast execution and tight spreads, especially to clients with VIP and Tailor-Made accounts.

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    Trade 70 major, minor and exotic forex pairs with ultra-low ECN spreads and fast execution via the MT4 or MT5 platforms. There are also zero SL/TP limits and automated forex trading is well catered for.

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    Go long or short on over 50 currency pairs with spreads from 0.6 pips on EUR/USD. Traders can access market-leading forex tools in the MT4 platform, including customisable forex charts and algorithmic trading.

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    Trade 45+ major, minor and exotic pairs with deep liquidity and low latency. The ultra-tight spreads from 0.01 pips on raw accounts, competitive $7 or lower round-turn commissions and high leverage up to 1:500 will suit scalpers, who can trade without limits.

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    Trade 50+ forex pairs, including popular major, minor and exotic pairs. This is a decent selection, but traders will have a choice between the attractive MT4, MT5 or IRESS platforms and regulatory cover from ASIC. The VPS will also suit automated forex trading strategis.

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    Anzo Capital offers 45+ forex pairs including majors, minors and exotics with fast execution and spreads starting from zero. High leverage up to 1:1000 is available with a margin call at 80% and a stop out level at 50%.

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    I think the range of 60+ major, minor and exotic currency pairs is fairly competitive, especially with spreads from 0 pips in the Pro account. Experienced traders can also access high leverage up to 1:500 in the popular MT4 platform.

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    PU Prime clients can trade 40+ forex pairs via the MT4 and MT5 platforms with dynamic leverage up to 1:500. Spreads start from near zero on Prime accounts, which also charge a $7 commission per lot, and a zero-commission Standard account with wider spreads is also available.

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    AdroFx's strongest offering is its 60+ currency pairs, which can be traded with very high leverage up to 1:500. The broker also offers competitive forex spreads starting from 0.4 pips and charges no commission. Additionally, traders have access to MetaTrader 4, which was built for forex trading and offers excellent support for technical analysis and algo trading.

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    Start trading on dozens of currencies at RoboMarkets with powerful analysis tools and pattern recognition technology. 35+ currency pairs are available with tight spreads from 0 pips and rapid market execution. You can also utilise the broker's forex news alerts and economic calendar.

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    MultiBank FX offers trading on 50+ major, minor and exotic currency pairs. Spreads are tighter than many competitors and the broker offers higher leverage than most alternatives. Automated trading strategies are also permitted.

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    Global Prime traders can access 48 forex pairs including majors, minors and exotics with tight spreads from 0.9 with no commission or from 0 with a $7 round turn. Forex is traded via the leading MT4 platform, micro lots are available and latency is low via a New York-based server.

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    ActivTrades is a great broker for active forex traders with industry-low spreads from 0.5 pips and zero commissions. The forex broker also offers impressive execution quality and speeds, alongside award-winning customer service.

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    Swissquote offers trading on a huge range of forex assets, covering 80+ currency pairs. Spreads start from 1.3 pips with the Premium account and there are zero commissions. Micro, mini and standard lot sizes are available plus options contracts on major currencies.

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    SimpleFX provides a comprehensive selection of around 60 currency pairs, from majors like GBP/USD to exotics like CHF/PLN. Forex trading fees are competitive, averaging 0.9 pips on EUR/USD during testing, while MetaTrader 4, available on desktop, web and mobile, was built specifically for trading currencies online.

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    With over 190 forex spot pairs, EZ Invest outperforms many rivals in terms of access to the currency markets. Users can also choose between desktop software, a webtrader plus a solid mobile app. On the negative side, spreads aren't the tightest on entry accounts.

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    Fortrade offers 60+ currency pairs including a good selection of majors, minors and exotics. Trading takes place via MT4 or Fortrade's proprietary, low-latency terminal, and spreads on the USD/GBP pair average a reasonable 2 pips.

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    FP Markets stands out as an excellent option for forex traders, boasting a selection of over 70 currency pairs covering a wide range of currencies, especially since expanding its choice of exotics. With average spreads of just 0.1 on the EUR/USD in its Raw account, the broker provides competitive pricing for traders.

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    Trade 80+ major, minor and exotic forex pairs. This is a very competitive range of currency pairs with 50+ exotics to choose from, and traders will benefit from fast execution and support from extra features including a pip calculator. The MetaTrader 4 software was also designed for online forex trading.

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    Libertex offers CFD trading on 50+ forex pairs, offering long and short opportunities. Its strength comes in its tight spreads – we were offered 0.2 pips for EUR/USD.

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    HYCM offers 40+ forex pairs, with most available to trade on either the MT4 or MT5 platform. The maximum leverage on offer is 1:30 in accordance with regulations, and tight spreads start from 0.2 on the Raw account and from 1.2 on the commission-free Classic account.

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    FXOpen clients can trade 50+ forex pairs (28 on micro accounts) with leverage up to 1:30. Fees are competitive with spreads starting from zero with a small commission on ECN accounts, and slightly wider spreads and no commission on STP accounts.

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    Trade 45 major, minor and exotic forex pairs. This is an average range, but the broker offers attractive and very competitive tight floating spreads from 0.3. Useful features including a news feed set the broker apart from many rivals and can help plan forex strategies.

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    Hantec Markets offers a limited range of 30+ forex pairs – less than most top brands, including Pepperstone with 100+. That said, market execution is rapid based on tests, and spreads are competitive starting at just 0.2 pips. This, combined with access to the popular MT4 platform with 30+ technical indicators, ensures a relatively complete trading experience for short-term currency traders.

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    Tier 1 liquidity on an impressive range of 189 currency pairs and spot metals, plus 130 forwards, from 0.4 pips.

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    With 100+ currency pairs including all majors plus many minors and exotics tradeable on the MT4 platform with 1:2000 leverage, SuperForex lives up to its name as a great choice for forex traders. The ForexCopy system is also useful for newer traders.

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    Trade 70+ major, minor and exotic forex pair CFDs with up to 1:1000 leverage, no commission fees and competitive spreads from 0.8 pips. FX trades can also be executed via the reliable and fast MetaTrader 5 software.

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    Traders can access a decent range of 60+ major, minor and exotic forex pairs through standard and ECN accounts with tight spreads from 0.5 and 0.0, respectively. Execution speeds are also faster than most competitors at 50ms, which will appeal to active forex traders.

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    Trade 24 forex pairs via binary options. Such a small range of currency pairs is not that unusual among binary options brokers, and BinaryCent's high payouts up to 95% compensate for the lack of range.

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    World Forex offers CFD and digital contract trading on 53 forex pairs, including EUR/USD and GBP/EUR. High leverage is available for CFDs, which can be accessed with competitive spreads on certain account types.

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    Trade on 45+ majors, minors, crosses and exotics, with competitive pricing, ultra-fast execution and no requotes. Newer traders can access zero-commission trading. Experienced forex traders can operate with no trading restrictions and benefit from an ECN account and a VPS service.

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    Trade 25+ major and minor currency pairs with access to over 30 technical indicators in the broker's proprietary terminal. You can also follow and replicate other forex trades using the integrated copy trader.

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    Trade 50+ forex pairs including popular majors and minors with very high leverage available up to 1:1000. Gold, silver, palladium and platinum pairs with USD are also available.

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    Trade 200 CFD forex pairs with DMA pricing and tight spreads, ultra low latency and high leverage up to 1:1000. The range of forex pairs available and pricing model are among the most attractive in the African market.

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    Exinity offers 150+ forex pairs to trade on a very competitive ECN pricing model, with spreads from zero and low commissions of $4 per round turn. Traders can access the powerful MT4 and MT5 platforms and trade with no restrictions on popular trading strategies.

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    Capital.com offer a long list of forex CFD pairs for trading. All have competitive spreads. The firm also ensures negative balance protection

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    Trade over 180 major, minor, and exotic forex pairs on the Trading 212 platform, featuring floating spreads and leverage up to 1:30. It’s important to note, though, that the forex broker has a history of adjusting margin requirements without providing adequate notice. As a result, CMC Markets is a better pick for forex traders with more currency pairs and a cleaner record.

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    Trade FX pairs with tight spreads & leverage.

How Forex CFD Trading Works

Contracts for difference (CFDs) are a derivatives product that allows speculation upon the variation in the values of two different global currencies. Forex CFD trading assets are given as currency pairs, such as GBP/USD, and each contract purchased will rely on the change in the exchange rate between these two currencies. CFDs are effectively contracts with a seller whereby both parties agree to exchange the difference in the value of the exchange rate between the open and close positions of the contract.

Forex trading through CFDs, rather than straight purchasing a large quantity of another currency to sell on later, makes it possible to profit from both an increase and decrease in the exchange rate, called going long or going short. For example, if you believe the exchange rate of GBP/USD will decrease (the GBP weakening against the USD), you would go short and, if the exchange rate does decrease by the time you close the position, you will have earned the difference as profit. Forex CFDs do not have expiry dates, so positions can be closed whenever you wish.forex cfd trading brokers

CFDs, including forex CFDs, are traded over-the-counter (OTC) in the same way that non-CFD forex trading is, which means they are not traded on a regulated exchange. The Financial Conduct Authority (FCA) has therefore sought to impose some protections for retail clients, which are explained further down in this guide.

Size Of The CFD Market

In 2020, we saw a 32% year-over-year increase in investors trading CFD products. This growth is being driven by more online brokers offering these products to retail investors (rather than just professional clients). For example, forex CFD trading along with CFDs in stocks, indices, oil and gold are offered by XMThinkMarkets (who took over Trade Interceptor), Videforex, XTB (which uses the xStation platform), forex.com and Oanda also offer traders access to other diverse product ranges online and through mobile apps (such as via an Android Package Kit (APK)).

However, forex traders should always verify the legitimacy and security of the platform they use as there have been serious concerns around some platforms like QProfit System, an automated trading robot in the CFD trading market.

Another reason for the growth in forex CFD trading is that the range of markets clients can access is always expanding, now often including cryptocurrencies (where legal), which has seen massive growth. There has also been more market volatility in recent years, which lends itself to CFD trading as it is designed for speculative trading of shorter-term trends with no need to take ownership of the underlying asset.

Leverage

Forex CFD trading, along with all types of CFD trading, can be leveraged, which means that brokers only require a proportion of the total value of the trade size to be given as collateral. This amount will be determined by the margin requirements. By way of an example, a particular CFD may have a margin requirement of 5%. This would mean the trader would only need to put down £5 for every £100 they are exposed to.

Leveraged financial products can increase returns, as the trader is trading with a value larger than their capital investment. However, for the same reasons, this means losses can also be more significant. Therefore forex CFD trading with leverage should only be undertaken by those who fully understand how CFDs work and the risks involved. Traders should only speculate upon currencies with leverage and margin requirements that are appropriate for their circumstances.

Forex CFD Trading Strategies

Long

When traders ‘go long’, this means they are buying an asset that they expect will rise in value, so they can sell it at a later date to make a profit from this rise. Knowing whether a particular currency pair is going to rise in value depends on several factors, for example, central bank interest rate decisions, the value of key commodities, political events and macroeconomic data releases. Traders should be aware of these factors and which upcoming events are likely to influence the value of a currency. Most brokers will give traders access to live economic news and data.

Short

‘Going short’ in forex CFD trading is when you ‘sell’ the CFD first, expecting the value of the asset to fall so that you can then buy the asset back and make a profit. Not all financial markets allow traders to ‘go short’ and so this is a popular strategy used by traders in the CFD markets. As with long positions, it requires strong knowledge of factors influencing the market.

Hedging

Forex CFD trading often forms part of sophisticated hedging strategies. For example, if an investor holds a large amount of one currency and believes its value may drop temporarily, they may wish to short it with a CFD to profit from its drop, offsetting the loss incurred by the held currency.

Day Trading

Forex CFD trading speculators may choose to buy and then sell their assets all within the same day. The success of this approach depends on the currency pair being traded and the time of day. For example, a forex pair may be more volatile and liquid on the day of a central bank interest rate meeting and could provide an opportunity for day traders. Day traders will also avoid overnight fees charged by many brokers.

Pros Of Forex CFD Trading

  • CFDs are a leveraged asset so traders can gain more exposure to the market and therefore earn greater profits (although they are at risk of greater losses for the same reason)
  • Allows for long and short positions, which means traders with a diverse portfolio can engage in hedging strategies
  • CFDs are not subject to stamp duty in the UK (though they will usually be subject to capital gains tax (CGT))
  • The CFD market has seen strong growth, which means higher liquidity and volume

Cons Of Forex CFD Trading

  • All types of CFDs are banned in the US, including forex CFDs
  • Spreads can reduce the profitability of forex CFD trading, especially with exotic currency pairs
  • In the UK, CFDs are generally subject to CGT
  • Leverage can make investing in forex CFDs high risk – 67% of retail investor accounts on CMC Markets lose money when trading CFDs

How To Start Forex CFD Trading

Choose A Broker

Many online brokers offer forex CFD trading, including IG and Plus500. Make sure that the broker is regulated and offers competitive spreads, with minimal additional fees.

Traders will usually be able to begin forex CFD trading on the broker’s trading platform through their website or on their app using a mobile or tablet device. Forex & CFD trading platforms – like XTB (running on the xStation platform) – can often also be downloaded through an APK. Most brokers will have demo accounts, which are recommended for less-experienced traders, given the complexity and risk of the CFD market.

Getting access to a live account will usually require the completion of an application form with personal details and other information, such as a preference of account type.

Open A Position

The range of currency pairs available for forex CFD trading will depend on the broker, though most will offer the major currency pairs (e.g EUR/USD, GBP/USD etc.), with many supplementing these with minor and exotic pairs. Traders can easily see the spread for a particular currency pair and then choose whether to go long (buy) or short (sell) on that pair.

Monitor Position

Be aware of key financial and macroeconomic events that impact currency values. Make use of any economic calendars or live data and news available on the broker’s platform. You should also keep an eye on other markets that may indirectly impact the forex market.

Close Position

The forex CFD trading position is closed when the investor decides, with the difference between the initial contract price and the final price being appropriately distributed between the trader and the broker.

Brokers will usually have advanced order types available, including a stop-loss order. A stop-loss order helps reduce risk by setting a limit on the amount by which a currency can depreciate before the position is automatically closed.forex cfd trading guide for beginners

Fees

Fees in forex CFD trading are usually generated from spreads (as opposed to commissions). Spreads tend to be tighter when investing in major currency pairs (e.g EUR/USD). With exotics, traders can easily encounter spreads over 20 pips.

Overnight rates will usually apply and vary depending on whether the trader has gone long or short. Some brokers will also charge fees for currency conversion, advanced order types and account inactivity. Deposit and withdrawal fees may also apply.

Forex CFD Trading Tips

Manage Risk Using Advanced Orders

Most brokers will have tools to enable traders to set limits on their losses and also allow them to close positions once profits reach a certain level. For any financial product, this is a useful tool to manage risk. However, for leveraged forex CFD trading, ensuring that limits on losses are implemented is important.

Do Not Hold Positions for Too Long

Overnight fees are usually charged by brokers on all CFDs. Although some traders may deliberately implement a longer strategy (swing traders and position traders), large trades kept open for a prolonged period can cause these fees to add up. Intraday forex CFD trading is not subject to overnight fees.

Start Small

Forex CFD trading was traditionally only available to professional investors and veterans. Although this market has opened up in recent years to retail investors, those with less experience should be fully aware of the fees they are liable for and the risk they are exposed to through leverage and market volatility. Make use of the demo accounts and any educational resources available on the broker’s website. If you are then satisfied that forex CFD trading is right for you, start with major currency pairs and small deposits.

Regulation

All types of CFD trading, including forex CFD trading, is regulated by the FCA in the UK. This regulation protects retail investors, for example, by limiting the maximum leverage rates to 1:30 for major pairs and ensuring traders cannot lose more money than they deposited in their accounts.

Some regulators in other jurisdictions have also implemented their restrictions on CFD trading. Like the FCA, the European Securities and Markets Authority (ESMA) has adopted leverage limits for retail clients.

Forex CFD Trading Promotions

The FCA has banned brokers from offering retail traders cash or other inducements to encourage them to trade. This is part of a string of measures taken by the FCA to protect retail clients from any financial product that has significant risk and is often traded without enough understanding and knowledge of the dangers involved. Other regulators, such as the Cyprus Securities and Exchange Commission (CySEC), have adopted similar measures.

Final Word On Forex CFD Trading

Forex CFD trading allows investors to speculate on the value of a range of currency pairs and potentially benefit from market volatility and the performance of different national economies. The assets are provided OTC and traders should be fully aware of the risks of investing in this leveraged financial product, preferably making use of advanced order types to limit losses. While spot forex trading may be less risky, with none of the leverage dangers, forex CFD trading allows for increased market exposure and the ability to earn a profit from bullish and bearish trends.

FAQs

What Is A CFD?

A CFD is a contract for difference. It is an agreement between a buyer and seller to exchange the difference in the value of the underlying asset between the opening of the contract and the closing of the contract, without actually owning the underlying asset. With forex CFD trading, this would be the exchange rate of a pair of currencies.

What Is The Definition Of Forex CFD Trading?

Forex CFD trading is a particular type of CFD trading involving currency pairs. It is essentially a form of speculating on whether the value of a currency will go up or down, without physically purchasing the currency.

Is Forex CFD Trading Risky?

Forex CFDs are a leveraged financial product, which means investors only have to invest a small proportion of a trade’s value. Gains will be multiplied by the leverage rate used, though losses are also magnified and you can end up losing more than you have in your account.

What Fees Are Typically Applied To Forex CFD Trading?

Most brokers will generate fees from spreads (the difference between the bid (buy) and ask (sell) prices). Spreads on major currency pairs, as opposed to exotic pairs, will usually be tighter and therefore more profitable to the investor. Other fees may be applicable depending on the broker, including overnight fees.

Is Spread Betting Or CFDs Better When Trading Forex?

Both involve traders speculating on whether the price of the underlying asset will rise or fall, without actually owning the underlying asset. In the UK, spread betting has a tax advantage; it is not subject to CGT or stamp duty, whereas forex CFD trading profits are subject to CGT (although not stamp duty).