The same underlying market — say, gold or oil — can be traded through several different instrument types, each with distinct mechanics. Choosing between futures, CFDs, and spot trading shapes your costs, flexibility, and risk profile more than most traders realize.
Spot Trading
Spot trading means buying or selling an asset for immediate settlement at the current market price — you own the actual asset (e.g. physical gold, an actual cryptocurrency, or currency in a forex spot deal) rather than a derivative of it. There's no expiry date and no roll process.
Futures Contracts
A futures contract obligates the buyer and seller to transact at a set price on a specific future date. Futures are standardized, exchange-traded, and require margin, but each contract expires and must be closed or rolled forward into the next contract month to maintain exposure.
CFDs
A CFD (Contract for Difference) is an agreement between trader and broker to exchange the difference in an asset's price from open to close of the position. CFDs typically have no fixed expiry (for 'cash' style CFDs), are traded over-the-counter with the broker as counterparty, and often offer more flexible position sizing than futures.
| Feature | Spot | Futures | CFD |
|---|---|---|---|
| Ownership of underlying | Yes | No (derivative) | No (derivative) |
| Expiry | None | Fixed expiry, requires rolling | Usually none (cash-style) |
| Leverage | Typically none or limited | High, standardized margin | High, broker-set margin |
| Trading venue | Exchange or OTC market | Regulated exchange | OTC with broker |
| Contract size flexibility | Variable | Fixed, standardized lots | Flexible, often fractional lots |
Rollover Costs and Effects
Futures traders holding a position past expiry must 'roll' into the next contract, which can incur a price gap (contango or backwardation) between the expiring and new contract. CFD traders avoid this manual rollover but instead pay ongoing overnight financing charges for holding leveraged positions.
Futures are cleared through a central exchange clearinghouse, reducing counterparty risk. CFDs are traded directly with the broker as counterparty, making broker regulation and financial standing an important consideration.
Which Fits Which Trader
- ▸Long-term physical holders or hedgers with real delivery needs: spot markets.
- ▸Institutional and advanced traders wanting exchange-cleared, standardized exposure: futures.
- ▸Retail traders wanting flexible position sizes, no fixed expiry, and easy access across many markets: CFDs.