What is the difference between Forex CFD’s and the actual Spot FX market? If I’m correct, CFD’s are a derivative that track the price of the underlying asset (in this case currencies) and we trade contracts and bet on the direction of the exchange rate.
If this is true, then how does this affect liquidity? Because if we’re trading CFD’s, doesn’t this mean we’re trading a completely different product to true Spot FX? We’re trading a contract and not actual currency, therefore doesn’t the Forex CFD market have far less liquidity than the real Spot FX market?
And my last question, do large players trade CFD’s or do they trade the true underlying asset? When we hear that Ray Dalio or George Soros has taken a speculative position in a currency, are they expressing this idea in the Spot FX market, or are they using derivatives such as CFD’s?
Apologies for any ignorance or lack of understanding.