CFD stock trading versus Futures Trading

Both CFD (Contract for Difference) and Futures contracts are extremely popular financial instruments. Both are traded extensively across global markets. Although neither of them involves the trade of underlying assets, both are derivative instruments and allow leverage and high trading returns.

Choosing between CFD stock trading and Futures trading can be an overwhelming task. Following information about CFD and Futures trading can help you make the right decisions:

CFDs are agreements formed by the trader denoting a nominal value of a specific asset. In CFD stock trading, if a trader thinks the market or relevant asset will increase beyond the normal value over time he prefers to buy the contract. And as soon as the asset increases above the nominal value, the trader sells the contract, thereby locking up the difference in trading profit.

Institutional investors and more experienced traders tend to prefer Futures trading over CFDs. The main reason behind this is the futures contracts set a particular date at which the final trade is done. This means that irrespective of whether the trader is buying or selling, the differences is locked on a particular specified date. Futures don’t track the price of underlying assets as closely as CFDs.

CFD or contracts for difference are usually traded off-market (with brokers that are market makers), whereas futures contracts are brought and sold specifically on large exchanges. Many traders argue that in CFD stock trading, many brokers tend to manipulate the prices. However, with cut-throat competition between brokers and the tremendous popularity of the CFDs, you won’t find brokers indulging in manipulation of prices.

Another comparison can be made between the two on the basis of the size of the contract they require you to trade. In this regard, CFDs are relatively more flexible. Besides, you can find CFDs in nearly every marketplace, such as shares, indices, commodities and currencies. Also, with CFD trading, you need not have multiple accounts at different brokers. You can trade even with one or at most two accounts.

Another important factor you need to consider when choosing between the two is the procedure they require you to follow when opening an account. Comparatively, it is easier to open an account when trading CFDs than creating an account when trading futures. Besides, there are usually less regulations surrounding contracts for difference and you can start trading CFDs even with much less capital.

Another notable advantage of trading CFDs to Futures is they provide access to free live charting. Majority of the CFD brokers across the world allow the CFD traders to access live free and streaming charts. On the contrary, futures market can be quite expensive in this regard and you may need to pay as much as $250 per month to obtain an access to a full charting package. Futures market has an edge over the CFD market, in being a transparent and fully regulated market.

Remember, although CFDs and futures have many similarities in style, they are distinct financial instruments and differ in key areas. Hence, before taking a final call as to which trading you should indulge in, weigh the pros and cons of both and choose the one that best suits your budget.