A CFD depicts the price movement of an asset, which gives the investor a clear picture of the value changes that occur while holding a position open. When a trader agrees to a futures contract, they agree to buy or sell the underlying asset at a predetermined price and date in the future. It is a contract that will be executed in the future, and the set price will stay unchanged, irrespective of the value movement of the asset. The buyer of a futures contract must execute the underlying asset when the contract expires. Consequently, the seller of the contract ordeal must provide the asset at the agreed date.
Futures operate based on prices established by the markets as they are traded on exchanges, while CFDs work based on prices established by the broker. Thus, the integrity of the price is expected to be higher in the case of futures when compared with CFDs. Simply put, futures can be considered a less flexible and more structured alternative to CFDs. As with any financial instrument or investment, trade cfd stocks comes with a risk. The use of leverage can make CFDs riskier than non-leveraged products, such as physical shares. Before you start trading with a live account, you should familiarise yourself with those products, practise in a risk-free environment, and learn more about risk management.
Options and CFDs share some common characteristics. They can both provide high leverage, and flexibility can be used for both hedging and speculation. However, there are some major differences between the two. When you buy a CFD, you agree to exchange the difference in price from when you opened a trade to when you closed it. Options give a trader the right (but not the obligation) to buy or sell an asset at a certain price in the future. Options offer more flexibility, and traders can create complex strategies using these instruments.