Futures or CFD's

[Uddipan]

I am a newbie in trading. Am based in the UK. Would like to trade E-Minis (DJ and S&P500)

Few quick questions - I'll be much obliged if an expert can post the replies to these:

- I know that CFD's for the above 2 instruments trace the spot price. Do their Futures also track the spot price? If not, what is the typical time lag between the future ans spot, and how much is the typical points difference of a future from the spot?

- On CFD's, I know that brokers take a spread e.g. 2 points for e*Trade. At the same time, futures seems tradable at rock-bottom commissions + a nominal charge for each contract. How much is the typical spread on Futures? What are the constituent charges for CFD's vs Futures (commission, stamp duty, spread, taxes, etc)

- Are there any hidden costs on Futures?

- In your opinion, given that I want to trade DJ and S&P E-Minis from UK, which is the better way to trade - CFD's or Futures?

- Which vendor/software platform/package should I use to trade the Dow Jones, given that I want to do this as a resident of UK?

Many thanks.

 

[Magos]

I am a newbie in trading. Am based in the UK. Would like to trade E-Minis (DJ and S&P500)

Few quick questions - I'll be much obliged if an expert can post the replies to these:

- I know that CFD's for the above 2 instruments trace the spot price. Do their Futures also track the spot price? If not, what is the typical time lag between the future ans spot, and how much is the typical points difference of a future from the spot?

- On CFD's, I know that brokers take a spread e.g. 2 points for e*Trade. At the same time, futures seems tradable at rock-bottom commissions + a nominal charge for each contract. How much is the typical spread on Futures? What are the constituent charges for CFD's vs Futures (commission, stamp duty, spread, taxes, etc)

- Are there any hidden costs on Futures?

- In your opinion, given that I want to trade DJ and S&P E-Minis from UK, which is the better way to trade - CFD's or Futures?

- Which vendor/software platform/package should I use to trade the Dow Jones, given that I want to do this as a resident of UK?

Many thanks.

Futures contract - Wikipedia, the free encyclopedia
Futures are rebalanced, or "marked to market," every day to the daily spot price of a forward with the same agreed-upon delivery price and underlying asset.

A future contract is a standardise contract, traded on the futures exchange, to buy or sell a certain underlying instrument at a certain date in the future, at a specified price.

CFD = Is an agreement between a Client and a provider to exchange the difference between the opening and the closing value of the trade. A CFD is a derivative product. There is a wide range of CFD's such as based indices, commodities, currencies, etc.
Advantages: dividends, price performance, margined products, no stamp duty on equity CFD transactions, no physical settlement, opportunity to go short as well as long, potential interest on short positions.
Disadvantages: losses are margined as well, taxable gains.


There are 3 main differences between futures and CFDs these being, liquidity, expiry dates and financing costs
CFD Overview - 123 CFD

Hidden costs (can be round turns / or commission depending on broker)
What is better for you depends how much you can put on the side for margin.

Futures software: TT Trading Technologies, Stellar Schneider trading associates, etc.
CFD's: IG group. CMC Markets, etc.

Try to follow links above and let me know :smart:

 

[Uddipan]

Many thanks for taking the time out to reply.

I had actually gone through the above sites earlier, but these sites do not seem to have information on the queries. Let me explain the first question through an example.

Assume:
- that we are trading the standard DJIA futures (DJ)
- the Dow Jones Index is 13000 at this minute (=t1). I know that a CFD broker will quote 12998-13002 now.
- the next minute (=t2), Dow Jones Index goes to 13002. Now, the CFD broker's quote will change to 12999-13003.
- Lastly, the fair value today has a premium of 2 points corresponding to the expiration period for that particular future i.e. the fair value of DJ at minute t1 is 13002.

Q) What is the quote I would get on DJ at time t1? Is it 13001-13003, assuming a 1 pt tick size?
Q) What is the quote I would get on DJ at time t2? Is it 13003-13304?

Hope the question is clearer. I will appreciate a reply.

I have read at one place that the top traders prefer futures vs CFD's. Is that true?

 

[alexander]

I have read at one place that the top traders prefer futures vs CFD's. Is that true?

Yes

Alex

 

[Magos]

Futures contract - Wikipedia, the free encyclopedia
Futures are rebalanced, or "marked to market," every day to the daily spot price of a forward with the same agreed-upon delivery price and underlying asset.

A future contract is a standardise contract, traded on the futures exchange, to buy or sell a certain underlying instrument at a certain date in the future, at a specified price.

CFD = Is an agreement between a Client and a provider to exchange the difference between the opening and the closing value of the trade. A CFD is a derivative product. There is a wide range of CFD's such as based indices, commodities, currencies, etc.
Advantages: dividends, price performance, margined products, no stamp duty on equity CFD transactions, no physical settlement, opportunity to go short as well as long, potential interest on short positions.
Disadvantages: losses are margined as well, taxable gains.


There are 3 main differences between futures and CFDs these being, liquidity, expiry dates and financing costs
CFD Overview - 123 CFD

Hidden costs (can be round turns / or commission depending on broker)
What is better for you depends how much you can put on the side for margin.

Futures software: TT Trading Technologies, Stellar Schneider trading associates, etc.
CFD's: IG group. CMC Markets, etc.

Try to follow links above and let me know :smart:

Sorry I didn’t get back faster.

Lets try to make it as simple as possible
Fundamentals
Reuters quote
DJ IND AVG JUN8, Last price 12175, Bid 12171, Ask 12175. Therefore last trade was a sell, but market did not move, because there is big demand in selling at this price.
Also Reuters spread is 12171 -75 (4 pips)

Answers
The CFD broker has the ability to widen the spread, to his advantage.
This can be done for the following reasons. He cannot achieve the best possible price to hedge his positions, or he increases the spread due to financing reasons. For instance each time a client enters a trade he must pay commission, lets say we don’t want the client to feel like he is paying all the time, therefore we increase a tick in our advantage and everybody is happy. This is stated in the contracts before a client opens an account. CFD’s are more standartised, but when it comes to spread betting (tax free profits) be careful. The spread can widen and narrow, before figures, tanking markets, ralling markets, and any 1000 reasons.

Lets take your example and try to break it down.
Last traded price: 13000, CFD broker spread: 12998 -13002 (4 pips wide) time t1 CFD broker
Last traded price: 13002, CFD broker spread: 13000 – 13004 (4 pips wide) time t2 CFD broker
13000 should be a sell (Reuters quote 13000-13004). CFD broker 2 ticks advantage
13002 should be a buy (Refuters quote 12998-13002). CFD broker 2 ticks advantage


The dow price that you have is the last traded price which could mean it can be a sell or buy. I think that’s why you are confused. Level 2 pricing issues.

Your CFD broker has increased the spread in his favor

Your top traders question can be described as an urban legend. The best traders specialize in a particular sector in the field, what suits there style. CFD’s are great if you don’t have the margin, but if you do Futures can provide faster winnings but also loses.


Hope this helps

 

[ofurbaldur]

Hiya

Trade SP500 via the futures market.

CFDs can have hidden cost.

Keep in mind its not easy to trade the SP500 futures.

Regards

Baldur

 

[Uddipan]

Magos (and others),

Thanks a ton for setting the time aside for replying.

- U

 

[Magos]

No worries , happy to help

 

[wiseass]

traded CFDs , now trade emini futures.
fr aus

 

[fouadassem]

i think futures price is better, there are fair.
it make market from trader's own power.

CFD is some fake.i think.