What is the difference between futures and CFDs?

The main advantages of the futures are:

  • Trading the futures is cheaper. The spreads on futures are lower than those on CFDs. The CFDs are priced off the futures so they have, per definition, a higher spread and hence a higher transaction cost. Even if the CFD broker doesn’t charge a commission he will include it in his spread.Futures traders
  • Trading the futures is transparent. The broker shows you the current price on the exchange and routes you order to the exchange for swift execution. The CFD prices are quoted by the CFD broker. Your order can be ‘worked’ by the broker in a positive or a negative way.
  • Technical analysis is accurate. Simply put, with futures what you see is what you get. Some CFD brokers, like IG Markets, will have charts on their platform showing market prices but the prices on which you trade are their in-house prices. Hence you can have a technical analysis buy signal on your chart but you cannot trade on that precise price.

The main advantages of the CFDs are:

  • CFDs are smaller than futures. The CFDs on indices tend to be a fraction of a future contract. This allows investors to do smaller trades and/or operate with a smaller account. If you have the capital to trade futures (without using too much leverage), stick to the futures for the above reasons.
  • Some index CFDs are quoted 24h/24. Many brokers will continue to quote their main index CFDs during the night albeit at increased spreads. This has the benefit that an overnight position can be protected with a stop order. In addition the investor does not run the risk of a negative gap opening. This advantage is obviously only relevant if you intend to keep your positions overnight.