How investors can trade currencies with CFDs


How investors can trade currencies with CFDs

Private investors have the opportunity to invest currencies with CFDs and thus diversify their portfolio

Diversification is crucial to spreading risk. In other words, those who invest in different asset classes, regions and industries spread their risk in an efficient way. This is how investors usually diversify their portfolio. This also works with currencies. If, for example, the stock and bond markets collapse, currency positions can limit losses in the portfolio. In addition, investors can manage their currency risk with this asset. For example, if you are invested exclusively in equities from the euro zone, you can cushion the currency risk in your portfolio by "buying" another currency.


Currency pairs serve as the underlying

Private investors can trade foreign exchange simply and easily with contracts for difference (CFDs). Currency pairs serve as the underlying assets. Depending on market expectations, investors invest in one currency outperforming another. An example is the currency pair Euro/US Dollar, which is popular among many investors. If you expect the euro to appreciate against the greenback, you invest in this market opinion with a long CFD on euro/US dollar. The term "long" refers to the currency mentioned first, in this case the euro. If, on the other hand, you believe that the dollar will perform better than the euro, you buy a short CFD on the same currency pair.

Opportunities and risks of leveraged investing

Important: Contracts for Difference are leveraged investments because investors only deposit a margin with the broker and not the full value of the reference value. This means that CFDs allow for leveraged profits if the investor's market expectation is fulfilled. For example, a leverage of 10 means that the price of the long CFD on the euro/US dollar will rise by 10 percent if the euro gains 1 percent against the greenback. However, the leverage also works in the other direction: If the market expectation does not come true, the CFD will lose value accordingly. In the example above, if the dollar gains 1 percent against the euro, the price of the long CFD would fall by 10 percent.

These are the advantages of foreign exchange trading:

  • Investors can reduce currency risk with foreign exchange investments.
  • Investors can invest in rising and falling currency rates with CFDs
  • If the market expectation is fulfilled, leveraged profits arise in the CFD
  • Euro/US dollar is popular among investors.

No comments

Leave a comment
Your Email Address Will Not Be Published.



TriveHub, where financial empowerment begins. 

Explore our comprehensive financial education platform, where market insights, expert guidance, and premium content come together to shape your investment journey. Whether it's stocks, currencies, or cryptocurrencies that pique your interest, we provide the knowledge you need to make informed decisions.
All financial products traded on margin carry a high degree of risk to your capital. They are not suited to all investors, and you can lose more than your initial deposit. Please ensure that you fully understand the risks involved and seek independent advice if necessary. For further information, please see our full Risk Disclosure, Terms of Business, and Privacy Policy. 
We use cookies to support features like login and allow trusted media partners to analyze aggregated site usage. Keep cookies enabled to enjoy the full site experience. By browsing our site with cookies enabled, you are agreeing to their use. Review our cookie information for more details.
This website ( belongs to Trive International, and it is the registered trademark of Trive International Ltd. Trive International Ltd. is authorized and regulated by the British Virgin Islands’ financial authority, named Financial Services Commission (“FSC BVI"), under the company number 1728826 and license number BVI SIBA/L/14/1066.

© 2024 Trivehub

Trivehub is operated by Trive International. The information on this site is for informational purposes only and does not constitute investment advice.