Comparing CFDs and Futures


Both Futures and Contracts for Difference are types of financial derivatives that produce values based on those of their underlying assets which are usually spread between the four main trading categories, i.e. currencies, stocks, indices and commodities. A very important feature about CFDs and futures is that you do not need to own any share of their underlying securities when you use them to trade the financial markets.

Essentially there are three key differences between these two financial instruments, which evolve about the following parameters: liquidity, expiry dates and financing.



This is the term used to assess the present volume of active traders who are buying and selling assets at any given time. Except for the largest exchanges, one of the biggest problems that you will experience when trading Futures is the lack of liquidity. This is because this market does not exhibit constantly high volumes of trading. This feature implies that you will not always be able to locate a suitable counterpart for your new future trades. As such, futures suffer from erratic price movements that can often create undesirable effects such as bad execution, requotes and price slippages.

In contrast, CFD trading does not display any of these problems because it enjoys unlimited liquidity. Consequently, you will always find a party willing to counter your trades no matter what time of the day or night it is. In addition, you can always be confident that you will be able to execute your CFDs immediately and at the exact prices quoted by your broker. You will never have to suffer from the negative impacts arising from requotes and slipped orders.


Expiry Dates

Another significant difference between futures and CFDs is centered on expiry dates. This parameter is only of superficial importance whenever you are trading futures. This is because contracts are normally completed before the expiry date elapses implying that deals are not restricted to being physically terminated at the that precise time. However, such dates are always stated in future agreements as an enticement to encourage buyers and sellers to initiate transactions.

In contrast, expiry dates play a vital role in CFD trading as they represent a specified time when a transaction must be completed. No deviations are allowed. As such, buyers and sellers can plan ahead accordingly because they know precisely when their deals will terminate.



The ability to trade on borrowed money also differentiates CFDs from Futures. Although you can obtain leverage by using either of these financial instruments, the methods deployed are significantly different. For example, the leverage associated with CFDs is the equivalent of buying the shares of an asset using a bank loan. In contrast, futures deploy a borrowing system that is based on the value of the underlying asset.

Despite their differences, CFDs and futures still have a lot in common. For instance, both are derivatives and utilize futures dates to determine profits and losses. You can also acquire substantial leverage facilities by trading either one of them that can potentially bolster your profitability. However, you still must appreciate that these two financial instruments are vastly different in their fundamental construction. Consequently, you always have to assess these variances when determining which one best matches your trading profile and aspirations.


Other Important Features

A major benefit of CFD trading is the counter-party. When you open a CFD position, you will do so against another real-live trader. Your CFD broker has no vested interest in the outcome of the trade whatsoever as its makes its profits from the commissions and fees that it charges you for its services.

Futures are traded on futures exchanges, which infers that they are readily available for speculation and normally track the movements of their underlying assets very closely.

Although its expiry dates are very important, a CFD can be constructed so its lifespan is open-ended so that it can be kept open for as long as you prefer. In contrast, a Future contracts are designed about a predefined maturity dates although they are normally closed before this time expires.

Both CFDs and Futures enable you to gain profits by speculating on the future developments of underlying assets without you having to purchase a physical stake in these securities. Your profit potential is further boosted by the availability of extensive leverage facilities.



As you can confirm, both CFDs and Futures have a great deal in common although they also exhibit major differences. Professional traders advise that in order to develop an impressive investment portfolio you need to acquire a firm understanding about the advantages and disadvantages associated with all the primary financial instruments available on the market today. In addition, you need to compare their pros and cons in order to assess which ones are most capable of assisting you in achieving your trading objective. This article is intended to set you on the right path by identifying the key similarities and differences between Futures and CFDs.

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