CFD vs Futures – Advantages and Disadvantages

What are the main advantages or disadvantages of each one?

Lots of people at their beginning want to trade forex, a.k.a. currency pairs. Forex’s market is the biggest one on stock exchange.

Trading CFD forex allows opening a brokerage account with really, really small capital. There are even brokers with minimum fund 200$ or less. In opposite of futures it’s probably the main difference.

CFD vs Futures

CFD as „contract for difference“ has different requirements for margins. When you are trading CFD, your limit or pending orders are not contained in the stock exchange as futures does. CFD forex is decentralized market so there are certain brokers who are called as „money makers“ (MM.) who are trading against you.

Do not worry, there are some really serious brokers.

Futures is centralized market so every pending or limit order you put in is automatically counted. In trading depth you can even see how many each contracts are actually sold or bought.

You can see the fight between bulls and bears bellow.

Trading depth

Trading depth

CFD markets has no depth due to being decentralized.

 

 

 

 

 

CFD FOREX ADVANTAGES

As we mentioned above, there are some specifics reasons why people are trading forex and here’s the list:

  • Minimum required funds are even few bucks (I strongly recommend to fund at least $200)
  • Speed and liquidity for filling orders
  • Leverage – 1:500, 1:200
  • There are no opening times like for example for Nasdaq
  • No commissions
  • More than 80 tradable pairs
  • No margin calls – you can lose the entire capital but the position is automatically closed on $0.
  • Micro lots or even nano lots
  • Free data
  • Free platform – Metatader4

CFD forex is really favorite, I started trading with forex too but then I move to futures.

DISADVANTAGES

  • Decentralized market
  • Some brokers are known as money makers
  • Lots of fundamentals news with enormous affect to forex markets
  • Spreads at night can be up to twice
  • Lots of scammers offering EA robots

If you have Facebook account (I bet you do) and you are added in some trading groups or pages you can meet tons of people offering EA robots or copy trades. There are providers who really knows what they are doing on the market and paying for their signals may help you improve your trading because you’ll find out what specific moves or patterns profitable providers look for.

On the other hand, is that alright? Did you started trading just to copy someone else’s signals? Every trader has its own trading system with specific criteria – own money management, patterns and what’s the most important, psychology aspects that allow them to trade the system. I tried to copy trading for one time and although it was profitable I decided to stop it because I was feeling like the herd. I came with ambitions to learn MYSELF to trade the markets and paying someone else’s may seem innocent, but in fact you are only:

  • outsourcing responsibility for trades
  • losing your own decisions
  • believing someone’s EA make you millionaireghš
  • WASTING YOUR TIME
  • acting like herd of naive believers

So I ask you again, is copy trading the thing you really need in your life? Does it improve your trading? Does following someone else’s trading system with no explanation or specific rules make you happy or rich? I’ve never heard about someone who got rich only from copy trading.

Back to the topic.:-)

FUTURES ADVANTAGES

  • Centralized market (no money makers)
  • No spreads
  • Limit or pending orders counts in depth
  • It’s real stock

DISADVANTAGES

  • Commissions
  • Slippage
  • Minimum required funds on serious brokers is $3000
  • Big margin needed for opening a trade (usually $500 for 1 contract)
  • Margin calls
  • No nano or micro lots, only contracts
  • Trading hours are usually very specifics (For U.S. Nasdaq it’s 15.30 to 22.15 | Central European Time (CET), UTC +1)
  • Paid tick data
  • Paid platform
  • Higher costs

Do you ask yourself why would you should ever think about trading futures?

Logically, trading futures costs more money, minimum required funds are $3000 and chance of margin call is high for newbies? Ergh, stop being so negative.

 

E-Mini Nasdaq

Personally for me it’s exactly the reason why I trade futures. After developing trading system that fits my strengths and using math I got system that brings usually 3 – 6% per week.

Do you ask how it’s even possible? I risk 1% to reach more than 3% in every single trade. If you would be interested in some facts what does it contains and more, simply contact me bellow in  comments.

We can talk and find a way how to build trading system exactly for you. That’s why I launched this blog. To share worth info and help my readers.