Guys are there any difference (in terms of safety or costs) between trading FX via exchange products or CFDs traded on OTC? Of course it all comes to differences in these two groups of brokers but I still can't understand which option is better.
1. Futures markets are always more reliable in any product because the exchange guarantees the settlement of trades. It acts as the semi-regulator of all transactions and collects margins upfront which helps to avoid defaults at a later date. If in case there is a default by any counterparty, the exchange is supposed to settle trades by way of "Novation". To make this possible, the exchanges have setup settlement guarantee funds. You can trade futures through a broker who's a member of the particular exchange. Simple stuff.
2. OTC markets have forward contracts and they do not trade on exchanges. The settlement happens privately between the two counterparties and there is no authority to ensure that it happens seamlessly. Moreover, forward contracts are not standardized like futures. By design, they are riskier and prone to defaults in my honest opinion. The forex market is traded across the network of banks and it is not channelized on any particular exchange. It is not possible for retail investors to trade unless the quantities are meaningful in the OTC market. Which is both rare and unlikely.
3. CFDs are basically modern-day bucket shops. You must be very careful when dealing with them and in fact, avoid them at all costs. Why? Because they are your counterparty for every trade. If you lose, then win. Now, what makes you think you can go to a casino, bet against them, win and walk out easily? There is a direct conflict of interest between the company that's providing the CFD and the so-called client.
Hope this clarifies.