Forex vs CFDs: what is the difference?

Most retail "forex" accounts outside the US are contracts for difference or rolling spot contracts, not trades in physical currency. Knowing which you hold explains your costs, your protections and what happens overnight.

Spot forex and rolling spot

A spot forex trade is an agreement to exchange currencies, normally settled two business days later. Retail brokers roll open positions forward each day instead of settling, charging or paying a swap for doing so.

CFDs

A contract for difference pays the change in price between opening and closing. You never own the currency. The same CFD account usually also covers indices, commodities, shares and crypto.

Why it matters

In the UK, EU and Australia, retail CFD rules set leverage limits, margin close-out at 50% and negative balance protection. In the US, retail clients cannot trade CFDs, and spot forex is regulated under separate CFTC and NFA rules.

In the UK, spread betting is a third format with different legal and tax treatment. Tax rules depend on your circumstances; check with a tax adviser.