Today we are talking about two types of contracts that we are faced with when we talk about trading: CFDs and FUTURES
On the one hand the bread and butter of the digital financial underworld and on the other a tool so serious that it is said that it is necessary to be at the computer wearing a jacket and tie to be able to handle it.
CFDs
CFD in English it is the abbreviation of Contract For Difference, contract for difference, it is a derivative instrument, with no expiry, which allows you to negotiate on the movement of the price without owning the underlying, also applying reduced and flexible sizes
When trading CFDs, there is no centralized exchange. These instruments are exclusively traded OTC or “over-the-counter”.
FUTURES
Futures are regulated and standardized expiring derivative contracts.
Buyer and seller agree to exchange a specified amount of underlying asset (financial or “real”) at a specified price and on a specified maturity.
Trades are executed on a centralized exchange such as Eurex or CME.
So what is the big difference between these two tools?
In the case of CFDs, there is a conflict of interest between the broker and the client. Because the counterparty is the broker himself.
The cfd broker is your liquidity provider. He doesn’t go looking for his counterpart in the market. This means that every time you are right, he loses.
This creates many questions as to how a CFD broker can always operate in the best interest of the client.
Therefore, the role of regulation related to futures trading cannot be underestimated.
With futures, trades between buyers and sellers can be matched based on publicly available rules, with price transparency, liquidity and anonymity to name a few of the many benefits.
When I started, the choice of Futures seemed obvious to me. Writing effective, well-diversified trading systems put on the market at the right time…
Of course buying a futures contract is not for everyone, in fact every contract requires a margin and even if it is a micro contract, the margins are still high for many people, so if you want to start in futures remember that you will need a lot more cash to maintain the open positions.
On the other hand we have our dearest CFDs which, as you will have understood, I don’t particularly like, nevertheless I believe they are tools that can be useful for those who are still beginners or do not have medium / high capital to invest.
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