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Summary
The type of CFDs you should trade depends on your investment goals and risk tolerance. Common options include stock, commodity, and forex CFDs. It's essential to research and choose CFDs that align with your financial objectives and risk appetite.
Many Forex brokers now offer a multitude of classes of assets for trading, including the currency pairs, which are well-known to the traders, as well as derivative financial instruments: CFDs (contracts for difference) on stocks, indices, commodities, cryptocurrencies, etc. It is extremely difficult for traders, especially the beginners, to choose a specific class of assets among such a variety of financial instruments. Traders Union experts conducted a research to find out how often successful traders trade CFDs and which class of CFDs brings them the highest returns. The research conducted by the team of TU analysts allows traders to borrow the experience of their successful colleagues and make the optimal choice in favor of a certain class of assets. The task of the research is to provide key specifications to the CFDs on different classes of assets and also find out which financial instruments the successful traders prefer.
In order to fulfill the task and obtain a trustworthy answer to the question of the research, the team of TU analysts surveyed 2,200 successful traders, trading Forex via the brokers from the Top 10 of the Traders Union rating. As a result of the survey, TU experts obtained unbiased and trustworthy data based on the experience of successful traders and were able to determine the best set of financial instruments for successful trading.
TU research also provides answers to the following questions:
What is CFD (contract for difference)?
Which types of CFDs are most frequently offered by the Forex brokers to the traders?
How does CFD trading differ from underlying asset trading?
Which types of CFDs do successful traders use in their trading?
The results of the research are based on the in-depth analysis of the questions raised by the team of TU analysts. Therefore, the traders from all across the world will be able to apply them to improve the results of their trading.
Glossary
Forex is a global financial market for exchanging currencies. The participants of Forex trading include central banks of different countries, companies, top international businesses, commercial banks and private traders.
Forex broker is a financial services company performing the function of an intermediary between the buyer and the seller of currency in the Forex market.
Trade deposit means the funds deposited by a trader to his/her account with a Forex broker with the purpose of performing trading transactions.
Volatility is a term used to describe fluctuations of trading prices within a specified period of time. It is believed that the higher the range of price fluctuations, the higher the volatility.
Liquidity is an economic term denoting the capacity of the assets to be sold at the price that is as close to the market price as possible with minimum possible expenses.
Slippage is the difference between the actual price of the order execution and the price set by the trader when the order is opened.
Spread is the difference between the best buy price and the best sell price in currency exchange.
Trading strategy is a set of rules and algorithms used for making decisions when trading in the Forex market. The trading strategies are divided into those based on technical or fundamental analyses, and there are also combined trading strategies.
Technical analysis is a type of asset evaluation based on the assumption that with similar market conditions the price of the asset will change in the future in the same manner that it had in the past.
Fundamental analysis is a type of asset price forecasting based on macro- and microeconomic indicators and their changes. It assumes that as a result of the change of the economic indicators, the price of the asset will change accordingly.
CFD (Contract For Difference) is an agreement between two parties – the buyer and the seller – on the transfer of difference between the current asset value at the moment of conclusion of the contract (opening position) and its value at the time of the contract expiry (closing position).
Opinions available in open sources
Having reviewed the opinions on trading CFD instruments available in the open sources (thinkmarkets.com, fpmarkets.com, publicfinanceinternational.org, contracts-for-difference.com, thefxview.com and others), TU experts came to a conclusion that there is no agreement of opinion on the best set of financial instruments for successful trading. Some traders believe that only Forex currency pairs should be traded, and not CFDs; and some are convinced that the best solution is to use other types of CFDs. Other traders prefer to build a diversified portfolio of assets, consisting of both currency pairs and different CFDs.
TU experts have tasked themselves with finding out which opinion of the above is true and which class of assets offered by the Forex brokers is the best for trading.
Theoretical part of the research
CFD is an agreement between two parties – the buyer and the seller – on the transfer of different between the current asset value at the moment of conclusion of the contract (opening position) and its value at the time of the contract expiry (closing position). By its form, a contract for difference is very similar to a goods supply contract, although the seller is not obligated to own a real asset when trading CFDs, and the buyer does not obtain the rights to demand delivery. If the price of the asset between the first and second transaction increases, the buyer gets the difference from the seller. If the price dropped, the seller will get the difference from the buyer. Usually, the validity period of such agreement is not set; it can be terminated upon the statement of one of the parties, which has such a right.
Having analyzed the open sources of information, experts of the TU’s analytical team discovered that the majority of Forex broker in the market offer the following types of CFDs:
Commodity CFDs;
Cryptocurrency CFDs;
Index CFDs;
Other types of CFDs (bonds, stocks, ETF and others).
Commodity CFDs:
Commodity CFDs envisage conclusion of a contract for difference on such assets as gold, silver, oil, natural gas, soy, coffee, maize, etc. The most known and traded commodity CFD is XAU/USD (Gold CFD). The average spread for this asset is 15-20 pips, while the intraday volatility is within 1%. Based on this, we can say that XAU/USD have sufficient liquidity, which, nonetheless, is lower than major currency pairs; at that, this contract has a rather low volatility, even though it is higher than major currency pairs.
Cryptocurrency CFDs:
Cryptocurrency СFDs imply conclusion of a contract for differenсу on major cryptocurrencies, such as BTC, ETH, XRP. BTC/USD contract for difference is rightly considered the most known and traded cryptocurrency CFD. The average spread for this asset is 320-450 pips, while the day volatility is around 4.5-4.6%, which begs the conclusion that this instrument has increased volatility, which exceeds volatility of major currency pairs 6-7 times, and also much lower liquidity than major currency pairs. Noteworthy, cryptocurrency CFDs is a rather new instrument, which is why it is offered by a comparatively small number of Forex brokers.
Index CFDs:
Index CFDs are very popular among traders. The most popular Index CFDs are for such indices as US 30, US 500, DAX, Euro Stoxx 50, CAC 40, FTSE 100 and others. S&P500 CFD (USA500, SP500, US500) is the most popular Index CFD. The spread for this instrument is 30-50 pips. The average day volatility of US500 CFD is 0.9-1%. Based on the aforementioned data, TU analysts have concluded that this class of assets has lower liquidity compared to major currency pairs, while the average daily volatility is at the level of Commodity CFDs.
Other types of CFDs (bonds, stocks, ETFs, etc.)
The team of TU experts included the following into this group of assets: Bond CFDs, Stock CFDs, ETF CFDs, Interest CFDs, etc. Stock CFDs are considered the most popular ones in the group. In order to evaluate the liquidity and volatility of this group of assets, TU analysts analyzed the data for Apple CFDs (AAPL). The spread for this CFD is 90-130 pips. The average day volatility is around 1.6-1.7%. According to the analyzed data, this group of assets is distinguished by average level of liquidity and rather high volatility.
Also, TU analysts decided to find out the pros and cons of CFD trading compared to underlying assets trading.
•a possibility of trading a wide set of classes of assets on one trading platform.
•a possibility of trading a wide set of classes of assets from one trading account.
•a possibility of using one EA for different classes of assets.
•it is not necessary to hold assets (for example, it is not necessary to register a wallet in order to trade Cryptocurrency CFDs).
•relatively low transaction expenses.
•in case of sale of CFD, a trade is not obliged to provide the underlying asset.
•In some countries (England), stamp duty is waived on CFD transactions.
•for Futures CFDs, a trader does not need to worry about the futures settlement date.
👎 As for the cons, there are the following:
•In case of stock or bond CFD trading, a trader cannot receive dividends or coupon payments.
•Forex brokers are most frequently the contracting party for CFD transactions, which is why traders need to choose very reliable Forex brokers.
•CFDs are off-exchange contracts, so they are not strictly standardized.
•CFD market regulation is weaker compared to the regulation of the underlying asset market.
Note:
TU experts recommend choosing only reliable Forex brokers for CFD trading, as this market has weaker regulation compared to the underlying assets market, while the traders in the market are solely off-exchange ones.
Results of the research by TU Research Department (*)
To answer the question of whether successful traders trade CFDs and which asset classes they prefer, the team of TU analysts surveyed 2,200 – members of the TU community. The survey was conducted using the CAWI (Computer Assisted Web Interviewing) method. The non-sampling error of the survey with a confidence level of 95% is no more than 2.5%.
Successful traders from different countries were offered to fill out a structured questionnaire, sent to them via email. All respondents have shown profitable trading for at least one year.
6.1. Surveyed traders by gender:
76% men;
24% women.
Picture 6.1. Respondents by gender, %
6.2. There are the following age groups in the sample:
44% of the respondents are aged 18-30;
35% — aged 30-45;
16% — aged 45-60;
5% of the respondents are older than 60.
Picture 6.2. Respondents by age, %
6.3. In terms of their trading experience, the composition of the respondents was as follows:
4% of the respondents have been trading on Forex for over 10 years;
23% — more than 5 years;
42% — from 3 to 5 years;
31% — from 1 to 3 years.
Picture 6.3. Respondents by Forex trading experience, %
6.4. In terms of the average monthly deposit growth for the last 12 months the results of the surveyed traders are as follows:
3% of traders — up to 15%;
18% of traders — up to 10%;
28% of traders — up to 5%;
31% of traders — up to 3%;
20% of traders — up to 1%.
Picture 6.4. Average monthly return rate of successful traders, %
6.5. The responses of the respondents regarding their trading strategies were as follows:
48% use long-term strategies;
52% — short-term strategies.
Picture 6.5. The ratio of use of long-term and short-term trading strategies, %
6.6. The responses of the respondents to the question about the use of different financial instruments in trading by them were as follows:
46% of the respondents stated they traded only currency pairs;
9% of the traders use only CFDs in their trading;
45% use both CFDs and currency pairs
Use of different financial instruments in trading
Votes
%
Currency pairs
1012
46%
CFDs
198
9%
Currency pairs and CFDs
990
45%
Total
2200
100%
Table 6.1. Distribution of traders’ answers on their use of different financial instruments in their trading
Picture 6.6. Distribution of traders’ answers on their use of different financial instruments in their trading, %
6.7. The respondents who answered “I use CFDs” or “I use currency pairs and CFDs” were also asked about the class of CFD assets, which they believe is preferable (the respondents could choose up to three options).
The result is as follows:
1,130 (38%) traders voted in favor of Commodity CFDs;
8% (238 votes) traders use Cryptocurrency CFDs.
1,219 (41%) respondents prefer trading Index CFDs.
13% (387 votes) traders prefer trading other types of CFDs.
Type of CFD
Votes
%
Commodity CFDs
1130
38%
Cryptocurrency CFDs
238
8%
Index CFDs
1219
41%
Other types of CFDs
387
13%
Total
2974
100%
Table 6.2. Traders’ responses regarding their preferred type of CFDs
Picture 6.7. Distribution of traders’ votes on their preferred type of CFDs, %
(*) Survey criteria:
Survey audience: successful Forex traders of the TU community aged 18 and older trading with the brokers from the TOP 10 list of TU rating.
The sample is representative in terms of age, gender and Forex trading experience.
Sample number: 2,2 00 respondents.
Survey method: CAWI (Computer Assisted Web Interviewing).
Non-sampling error of the study with a confidence level 0.95: no more than 2.5%.
Period of survey: July 22-24, 2023.
Findings
Based on the results of the conducted research, TU experts have reached the following conclusions:
1
The majority of traders surveyed by the TU experts consider CFD trading justified (54% of all surveyed traders).
2
The majority of the surveyed traders trading CFDs prefer Index CFDs.
3
Experienced traders choose CFD trading more often than others.
4
Traders who prefer short-term trading strategies choose CFD trading more rarely than traders who use long-term strategies.
5
Traders with the highest monthly return in the past 12 months trading CFDs choose other types of CFDs more often than other groups of respondents.
PDF version of the TU research
For more detailed information on trading CFDs of different types, download the full version of the research conducted by our team.
CFD Trading — Commodity, Cryptocurrency, Index. What Type of CFD Successful Traders Choose?| Expert Opinion
Using such financial instrument as CFDs is a good alternative to trading Forex pairs, but you need to keep in mind several things that strongly impact the success rate of CFD trading:
Such instruments as CFDs mainly have lower liquidity and higher volatility compared to the currency pairs.
You need to remember that a CFD is an off-exchange contract and the Forex broker that provides access to CFD trading is often the contracting party in such transactions. Therefore, traders need to carefully select their Forex broker to reduce non-trading risks.
CFD does not envisage delivery of the underlying asset. Therefore, the trader will not receive dividends or coupon payments.
Transaction expenses in CFD trading are often higher than in currency pair trading.
If the trader has assessed all risks and they are in line with capital management rules within his/her trading strategy, CFD trading can substantially increase profits and diversify risks.
Before starting to trade CFDs, we highly recommend thoroughly testing the chosen CFD for compliance with the strategy that is being used on a demo account or a live trading account with minimum trading lot and leverage. The right use of CFDs will help you earn higher profit at lower risks.
Antony Robertson
Traders Union’s analyst trader
Background info.
TU research is a result of many days of hard work by our experts, who collected, processed and analyzed a huge amount of information and opinions on trading different types of CFDs. Our data are also largely based on the success stories of real traders, who work with TU, which supports objectivity and impartiality of our research.
Our research is of a charitable nature and was created at the expense of Traders Union with the objective of increasing financial literacy of Internet users and increasing the percentage of successful transactions among traders. If you enjoyed our research and found it useful, please share it with others.
Mikhail Vnuchkov joined Traders Union as an author in 2020. He began his professional career as a journalist-observer at a small online financial publication, where he covered global economic events and discussed their impact on the segment of financial investment, including investor income. With five years of experience in finance, Mikhail joined Traders Union team, where he is in charge of forming the pool of latest news for traders, who trade stocks, cryptocurrencies, Forex instruments and fixed income.
The area of responsibility of Mikhail includes covering the news of currency and stock markets, fact checking, updating and editing the content published on the Traders Union website. He successfully analyzes complex financial issues and explains their meaning in simple and understandable language for ordinary people. Mikhail generates content that provides full contact with the readers.
Mikhail’s motto: Learn something new and share your experience – never stop!
Olga Shendetskaya has been a part of the Traders Union team as an author, editor and proofreader since 2017. Since 2020, Shendetskaya has been the assistant chief editor of the website of Traders Union, an international association of traders. She has over 10 years of experience of working with economic and financial texts. In the period of 2017-2020, Olga has worked as a journalist and editor of laftNews news agency, economic and financial news sections. At the moment, Olga is a part of the team of top industry experts involved in creation of educational articles in finance and investment, overseeing their writing and publication on the Traders Union website.
Olga has extensive experience in writing and editing articles about the specifics of working in the Forex market, cryptocurrency market, stock exchanges and also in the segment of financial investment in general. This level of expertise allows Olga to create unique and comprehensive articles, describing complex investment mechanisms in a simple and accessible way for traders of any level.
Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets. Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO). Mirjan is a cryptocurrency and stock trader. This deep understanding of the finance sector allows her to create informative and engaging content that helps readers easily navigate the complexities of the crypto world.
