CFD Trading vs Futures

CFD Trading vs Futures trading for dummies, Difference between CFD and Forward explained by experts, Compare CFD trading and Futures trading and choose which one works for you to make money online.

CFD Trading vs Futures

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There are a number of different financial products that have been used in the past to speculate on financial markets. These range from trading in physical shares either direct or via margin lending, to using derivatives such as futures, options or covered warrants. A number of brokers have been actively promoting CFDs as alternatives to all of these products.

Although no firm figures are available as trading is over-the-counter, it is estimated that CFD related hedging accounts for somewhere between 20% and 40% the volume on the London Stock Exchange (LSE).[citation needed] A number of people in the industry back the view that a third of all LSE volume is CFD related. The LSE does not monitor the numbers but the original 25% estimate as quoted by many people, appears to have come from a LSE spokesperson.

The CFD market most resembles the futures and options market, the major differences being.

  •     There is no expiry date, so no time decay;
  •     Trading is done over-the-counter with CFD brokers or market makers;
  •     CFD contract is normally one to one with the underlying instrument;
  •     CFDs are not available to US residents;
  •     CFDs are not available to HK residents;
  •     Minimum contract sizes are small, so it’s possible to buy one share CFD, low entry threshold;
  •     Easy to create new instruments, not restricted to exchange definitions or jurisdictional boundaries, very wide selection of underlying instruments can be traded.

Difference Between CFD and Forward

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Futures are preferred by professionals for indices and interest rate trading over CFDs as they are a mature product and are exchange traded. The main advantages of CFDs, compared to futures, is that contract sizes are smaller making it more accessible for small trader and pricing is more transparent. Futures contracts tend to only converge near to the expiry date compared to the price of the underlying instrument which does not occur on the CFD as it never expires and simply mirrors the underlying instrument.

Futures are often used by the CFD providers to hedge their own positions and many CFDs are written over futures as futures prices are easily obtainable. CFDs don’t have expiry dates so when a CFD is written over a futures contract the CFD contract has to deal with the futures contract expiry date. The industry practice is for the CFD provider to ‘roll’ the CFD position to the next future period when the liquidity starts to dry in the last few days before expiry, thus creating a rolling CFD contract.

Now you know all about CFD Trading vs Futures trading  and the difference between CFD and Forward by experts, You can compare CFD trading and Futures trading and choose which one works for you to making money online.

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