CFD vs Futures Differences and Similarities

CFDs and futures are both popular types of financial derivatives, where traders speculate on an underlying asset’s price direction. In our following CFD vs futures guide, we aim to help you understand the differences and similarities between both the instruments and which instrument you should choose to trade.

We’ll also shine a light on how you can begin your trading journey with us at CAPEX – One of the best online brokers for CFDs.

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Author:

Roy Connor

Last Updated on:

24/05/2023

Topic:

Trading

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Available customer support

As a trader, you could have questions as you find your way around a trading platform and learn more about online trading. Luckily we, at CAPEX offer available customer support through live chat, email, and phone.

Our customer support team can be reached seven days a week. Plus, considering that we have clients from across the world, we provide customer support in several languages. You can also visit our FAQs page to get relevant answers to most queries.

Excellent learning tools

Ongoing learning is the easiest route to becoming an expert trader. The rule is simple – the more you know, the better you can invest.

Keeping that in mind, we at CAPEX offer traders a number of learning tools, including a trading dictionary, where traders can learn basic terminologies. We also offer an online trading school by the name CAPEX Academy, where traders can watch video content to learn CFD trading. Similarly, we have a trading blog where expert traders post about market trends, helping traders stay in touch with market updates.

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How do CFDs work – CFD trading 101

A CFD or contract for difference is an agreement between two parties to exchange the value of an underlying asset or security after a specific period of time. So when you invest in CFDs, you purchase a contract rather than an asset. Plus, CFDs are traded with leverage, so traders can invest with fewer funds and get greater market exposure.

Diversification with CFDs

CFDs can be traded on a wide range of assets or instruments, which allows CFD traders to benefit from diversification. Plus, you can renew a CFD contract when it’s about to end if both parties consent to it.

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Pros and cons of trading CFDs

Pros of trading CFDs

CFDs are traded on margin, so they require less capital investments, or traders only have to pay a fraction of their trade value.
CFDs can be traded on numerous assets and instruments, which allow traders to diversify their investments in a range of markets.
There is no expiry date to a CFD; instead, one can renew the contract once it’s coming to an end.
CFDs aren’t complicated instruments. Instead, they’re simple and easy to trade.
Since you don’t buy and sell any underlying assets, the trading costs are lower for CFDs.

Cons of trading CFDs

The primary and most significant drawback of trading CFDs is that they come with a high level of risk.
When you trade CFDs, you don’t own the underlying asset.

How does futures trading work? Futures trading 101

Futures trading involves the buying or selling of an asset at a predetermined date and price. So the buyer or the seller speculates an asset’s future price and then agrees to a contract that obligates them to buy or sell an asset at a given time regardless of the asset’s value at the expiration of the contract.

Why is future trading beneficial for investors?

Future trading can be done on a wide range of markets and allows traders to avoid huge losses that could result from an unexpected shift in an assets price by locking in an asset or commodities price.

Learning tools at your disposal

Here at CAPEX, we have designed and integrated several learning tools throughout our trading platform and website to help our users trade CFDs and better manage their risks. For instance, traders can learn CFD trading through our online trading school CAPEX Academy through video content.

Pros and cons of trading futures

Pros of trading futures

You can trade futures on a wide range of instruments, including stocks and commodities.
Futures are traded with leverage, which means you have to invest only a fraction of the total contract amount.
Sellers can avoid the risk of huge losses as the selling price is predetermined. So, companies use futures to hedge the price of their commodities or goods.

Cons of trading futures

The primary drawback of trading futures is that you become obligated to buy or sell an asset even if you’re going to face loss.
You can lose more than your initial investment due to leverage.
You might miss out on favorable market movements.

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CFD vs futures - Differences and similarities

The main similarities between CFDs and futures are that both of these instruments are a type of financial derivative, both are traded on margin, and both instruments involve speculating on an asset’s future price. However, there are several noticeable differences between them as well. For instance:

CFDs don’t involve the buying or selling of an underlying asset. However, futures involve buying and selling assets at a predetermined time and price.
CFDs are easier to trade and have fewer barriers, whereas there are certain requirements to trade futures.
Futures offer less flexibility and cannot be renewed after expiration. However, CFDs can be renewed with the consent of both parties.
Future contracts have wider spreads when compared to CFDs.

If you’re still confused as to which instrument you should trade, you can determine whether or not CFD trading is right for you through our CFD demo trading account.

CFD vs futures - Which instrument should you choose to trade and why?

No instrument is better than the other; each trading instrument comes with its own set of pros and cons.

If you want to avoid huge losses and play it safe with lesser flexibility, you can go for future contracts. On the other hand, if you’re interested in an instrument that offers diversification, requires low capital investment, and enables you to benefit from falling and rising markets, you should go for CFDs. Not only are CFDs simple to trade, but they also allow you to invest in numerous markets through stocks, forex, indices, ETFs, etc.

Here at CAPEX, we offer over 2100 tradable assets that you can trade through CFDs, and this includes CFD on futures. If you’re confused between CFDs and futures, trading:

Trading tip 1: Do your research

It’s important to know the market that you’re investing in and the factors that affect that market. You can’t trade successfully unless you have the right set of knowledge. The rule is simply ‘The better you know, the better you trade’. Here at CAPEX, we encourage traders to research different markets before investing. We also provide learning tools so traders can stay up to date with market trends.

Trading tip 2: Practice on a demo account

Practicing trading on a demo account is a great way to learn to trade and understand the risks associated with trading an instrument. Here at CAPEX, we offer one of the best CFD trading demo accounts. You can sign up for a demo account for free and begin practicing until you’re ready to invest.

Trading tip 3: Learn and apply online trading strategies

Having a few expert strategies up your sleeve can make a huge difference in your trading experience. You can learn more about online trading strategies such as hedging strategy or forex scalping strategy through our website. You can even follow expert traders through a feature present on our MT5 trading platform.

Trading tip 4: Diversify your trades

The last thing you want to do is put all of your eggs in the same basket. To trade CFDs successfully, you need to play it safe by investing in a range of assets or markets, so if one investment doesn’t go so well, another investment covers up for it. If you’re day trading, you can even apply the 1% strategy, which insists that none of your investments should be worth more than 1% of your capital.

Here at CAPEX, we allow traders to learn about trading through tools such as a trading dictionary, IPOs, an expert trader’s blog, and a demo account feature. If you’re hoping to invest in CFDs smoothly and become a better trader at the same time, you can sign up with us at CAPEX and learn more about trading with the CAPEX Academy.

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Being one of the best CFD online broker for all traders, we offer a wide range of trading benefits to our users, including:

Over 2,100 tradable assets so users can diversify their trades.
Effective learning tools because we believe ongoing learning is the key to becoming a successful trader.
Two smooth trading platforms are available to download as applications on iOS and android.
Excellent customer support available seven days a week.
Low trading commissions and fees.

If any of the above benefits spark your interest, you can sign up with CAPEX with a few simple steps. Just log on to our website, enter a few personal details, attempt an online assessment, and your account will be verified and ready to use in no time.

Final thoughts – Trade CFDs with CAPEX

Beginning your trading journey can be overwhelming, especially because there are so many tradable instruments to choose from. While CFDs and futures have a lot in common, both offer unique trading experiences.

So, if you’re looking for a more flexible trading option that allows you to trade on margin and diversify your trades, CFDs might be the right choice for you. However, if you’re still confused, we recommend that you sign up on our demo account feature and experience CFD trading without risking any capital. Or, alternatively, you can trade CFD on futures. Sign up with CAPEX today and experience the world of CFD trading with ease and convenience.

CFD vs Futures – FAQ

🤷 Is CFD trading ideal for traders?

👀 Can CFD trading make me rich?

🤔 Should I trade with leverage?

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