Both CFD trading and futures trading are a popular form of buying and selling assets in various financial markets, including bonds, commodities, shares and forex. However, CFD trading is quite different from futures trading in its very nature and in traders’ intent. As you should be already familiar with how CFD trading works below we will tackle the futures trading in more detail.
Futures trading, unlike CFD trading, is usually undergone to hedge future risks of rising prices on various financial assets, mostly so on the rising prices of commodities. Futures is a form of a financial contract that obliges to buy or to sell an asset at a defined price level at a certain time in future. For example, a large agricultural corporation might decide to hedge some of its risks by knowing for sure corn prices in the upcoming year. Hence this corporation decides to buy futures for corn thus creating an obligation for itself to buy a commodity for a certain price and at a certain time in future. The seller of the corn futures is in its turn has an obligation to sell the commodity for the price and at the time stated in the futures contract.
Futures trading can also be explained when compared to options trading. Options trading allows traders to decide whether they want to exercise them on the date of expiry or not, so buying an option is like buying a right. On the contrary in case of futures trading, traders have no choice but to abide the obligation to buy or to sell an asset at the time defined in the futures contract.
To Sum Up On The Differences
Comparing CFDs vs futures trading leads to a conclusion that they are both financial derivatives but CFDs are traded to make profit on predicting where the market will go and futures are usually traded to hedge against cases where the market goes up or down. Besides, CFDs are common in many financial markets, including the market for futures trading. CFD futures trading works in the same way as CFD trading in stock markets.