What are Forex, CFDs, ETFs?

What are Forex, CFDs, ETFs? It is useful to know exactly what all these different and often confusing terms mean, so it is worth taking a closer look at exactly what is on offer at retail Forex brokerages under these labels.

What are Forex, CFDs, ETFs? Spot Forex

“Spot Forex” means that you are just trading one currency for another, and back again when you take the profit or loss. There is nothing complicated about this. The term “spot” originally signified that it was for actual next day delivery.

This is the traditional instrument that retail Forex trading began with. When you see currency exchange rates quoted at banks or on the news, it is the spot prices that are being referred to.

Spot Forex is usually relatively cheap to trade, regarding spreads and commissions.

What are Forex, CFDs, ETFs? Futures

A “future” is something you buy or sell for delivery at a future date. It can also be a currency pair. For example going long spot EUR/USD is like buying Euros with U.S. Dollars right now. On the other hand, going long a EUR/USD future for delivery at the end of next month, is like committing to buying Euros with U.S. Dollars at the end of next month. Note that there is no actual delivery involved in your broker’s transaction, but that all futures have a theoretical delivery date. So we can see that the price of a EUR/USD future might be different to spot EUR/USD, depending upon what the market expects to happen between now and the future’s delivery date.

What are Forex, CFDs, ETFs?

Futures are usually more expensive to trade than spot, unless you are planning a very long-term trade. This is because while the spreads and commissions are usually higher, there are no overnight financing charges – which are usually payable on spot Forex. They also tend to be less liquid than spot Forex, which means that price movements might be more jerky and volatile.


A CFD is a “Contract for Difference” based upon an underlying asset. When you buy or sell it, you make a contract with your broker that X amount of money will pass between you based upon a movement in the price per unit for or against your chosen direction. For example, suppose that you want to go long in shares of Apple Inc. You would buy a CFD based upon the price of Apple Inc., and when you closed that trade, the difference in the price of the share from your trade’s open to close would be the basis of your gain or loss. The purpose of the CFD is to prevent you from having to go to the trouble of buying or selling in actual shares, which can be quite large in value, plus the associated charges and taxes involved in actual sale or purchase.

A forex broker may utilise an economy of scale by covering their exposure by buying or selling the actual net amount of shares in Apple Inc. represented by their clients’ net trades.


An “ETF” is an “Exchange Traded Fund”. This is simply a fund that can be bought and sold publicly in share units, like a mutual fund, but which is based on an asset or baskets of assets, for the sake of convenience. It is probably simplest to think of it as a type of mutual fund. For example, if you want to invest in Gold Mining Shares, you could buy a share in a Gold Mining ETF that tracks the market capitalization weightings of all shares in Gold Mining companies quoted on a particular exchange. It is a way to be exposed to an asset or some kind of index representing a type of asset without all the cost and trouble of actually having to buy it all directly.

These four definitions – Spot Forex, Futures, CFDs and ETFs – are not all mutually exclusive. For example, a gold trading broker could offer a CFD instrument based upon a Gold Futures ETF. The only exclusivity here is between Spot and Futures.

25 Responses to “What are Forex, CFDs, ETFs?”

  1. nice article. very easy to read. write more for forex beginners like me

  2. what about binary mate? are they a scam?

  3. Bernita Elmblad October 3, 2017 at 1:40 pm

    Nicely done.

  4. Brittaney Vanaken October 4, 2017 at 9:20 am

    Wonderful post however , I was wanting to know if you could write a litte more on this topic? I’d be very thankful if you could elaborate a little bit further. Thanks!

  5. This will be a terrific web page, might you be interested in doing an interview regarding just how you designed it? If so e-mail me!

  6. I’m not sure exactly why but this website is loading very slow for me. Is anyone else having this issue or is it a problem on my end? I’ll check back later and see if the problem still exists.

  7. Does your site have a contact page? I’m having problems locating it but, I’d like to send you an email. I’ve got some creative ideas for your blog you might be interested in hearing. Either way, great blog and I look forward to seeing it expand over time.

  8. Forex Converter November 18, 2017 at 3:14 pm

    Thank you for such a good passage discussed. I really have a great time understanding it.

  9. ExtraProxies.com November 19, 2017 at 1:32 am

    Hello, i read your blog occasionally and i own a similar one and i was just wondering if you get a lot of spam remarks? If so how do you protect against it, any plugin or anything you can suggest? I get so much lately it’s driving me crazy so any support is very much appreciated.

  10. Debroah Terheggen November 20, 2017 at 5:24 am

    Hey, I think your website might be having browser compatibility issues. When I look at your website in Ie, it looks fine but when opening in Internet Explorer, it has some overlapping. I just wanted to give you a quick heads up! Other then that, amazing blog!

  11. Hey! Quick question that’s entirely off topic. Do you know how to make your site mobile friendly? My website looks weird when browsing from my iphone 4. I’m trying to find a template or plugin that might be able to correct this issue. If you have any recommendations, please share. Thanks!

  12. Woah! I’m really enjoying the template/theme of this website. It’s simple, yet effective. A lot of times it’s tough to get that “perfect balance” between user friendliness and visual appearance. I must say you have done a awesome job with this. Additionally, the blog loads super fast for me on Internet explorer. Excellent Blog!

  13. Hello there! This is my first visit to your blog! We are a collection of volunteers and starting a new project in a community in the same niche. Your blog provided us useful information to work on. You have done a wonderful job!

  14. I’m not sure why but this web site is loading extremely slow for me. Is anyone else having this problem or is it a problem on my end? I’ll check back later and see if the problem still exists.

  15. Parthenia Mattu November 26, 2017 at 6:40 pm

    Hello there! Would you mind if I share your blog with my twitter group? There’s a lot of people that I think would really appreciate your content. Please let me know. Thank you

  16. Have you ever thought about writing an e-book or guest authoring on other sites? I have a blog based on the same subjects you discuss and would really like to have you share some stories/information. I know my subscribers would value your work. If you are even remotely interested, feel free to shoot me an email.

  17. Sweet blog! I found it while searching on Yahoo News. Do you have any suggestions on how to get listed in Yahoo News? I’ve been trying for a while but I never seem to get there! Appreciate it

  18. I really like your wordpress theme, wherever did you down load it from?

  19. Hey there! I’m at work browsing your blog from my new apple iphone! Just wanted to say I love reading your blog and look forward to all your posts! Keep up the fantastic work!

  20. I’m not that much of a online reader to be honest but your sites really nice, keep it up! I’ll go ahead and bookmark your site to come back in the future. Cheers

  21. Thank you a bunch for sharing this with all of us you actually know what you are talking about! Bookmarked. Please additionally talk over with my web site =). We could have a hyperlink alternate arrangement among us!

  22. Hi. Very good article,thanks for sharing. I visit this website every day.

Leave a Reply

%d bloggers like this: