Author Box
Articles Categories
All Categories
Articles Resources

Comparing CFD With Other Financial Instruments

May 31, 2012 | Comments: 0 | Views: 146

One of the best ways to appreciate the worth of an asset or instrument is by comparing it with the other similar or related products. It is in this regard that in order for us to better appreciate the contract for difference or CFD trading, we will compare this with the other financial products. Specifically, after outlining some of the key elements of CFDs, we will compare it with futures trading as well as options and even exchange-traded funds or ETFs.

To give you a brief backgrounder on the major elements of contracts for difference relative to the other products that also aim to speculate on the movements of the financial markets, we will describe here its unique qualities. For instance, it has no expiration date, which means that it has no price decay. Aside from that, trading can also be done through off-exchange with the help of CFD brokers or what they call as the market makers. Moreover, there is a low threshold for entry in buying one share since the minimum size of the contract is only small.

On the one hand, comparing it with futures trading, the latter is preferred by many experts in this field for transactions on indices as well as interest rates trading instead of using contracts for difference. This is because they are more matured products. One of the main advantages of the former to futures trading is the contract sizes, which I have already explained briefly above. However, aside from that, the pricing for CFD is also more transparent compared to futures trading. Moreover, futures contracts have price decay factor that is close to the date of expiration date, which makes it less attractive than the former.

On the other hand, if we will compare CFD with options, the latter is characterized like the futures since these are established products. The main advantage of the latter over the former is the fact that it can be used to hedge risks as well as to speculate. However, the major setback of options over the former is the simplicity of the pricing as well as the range of the available underlying instruments since pricing in options trading is a bit complex. Nevertheless, options can be used to reduce risks while CFDs cannot be used as such.

Thirdly and lastly, exchange-traded funds or ETFs and contracts for the difference can both be used for short term speculations. Aside from that, they are also available in both wide varieties of underlying assets or products. However, the former is more matured than the latter. However, since ETFs are naturally exchange-traded products, the cost involved is usually much higher compared to a small margin that you will only need to open a position in CFD trading. Further, access in these ETFs can only be done through traditional brokers. is an online trading portal and education site, aimed at making it easier for traders to learn about CFD covering a broad base of different investment types and instruments, and its comparison with other tradings tools.

Source: EzineArticles
Was this Helpful ?

Rate this Article

Article Tags:

Cfd Trading

Forex dealing is dealing in currency trading and basically includes dealing in foreign exchange while the stock market dealing is the dealing of stock in a standard market market. The two types of

By: Anil Mali l Investing > Stocks l October 25, 2012 lViews: 243

Investments in silver metal can be done by several ways. The article talks about the best ways of silver investments. Silver, the precious metal has always attracted investors for several reasons.

By: Kyles Humphrey l Investing > Gold Silver l August 17, 2012 lViews: 305

The article offers reasonable reasons for high oil prices. Crude is indispensable and it is a great source of energy. The prices on oil keep on altering, sometimes it is too high and sometimes it

By: Kyles Humphrey l Investing > Stocks l August 17, 2012 lViews: 286

Many investors are unaware of new tax that will be levied as part of the Supreme Court’s decision to uphold President Obama’s health care reform. The investment tax, as it is being referenced,

By: Ben Esget l Investing > Retirement Planning l July 17, 2012 lViews: 405

A few months ago, I was at Starbucks talking to someone about stocks and bonds, he and his wife had worked hard and were worried about the stock market. They wanted something much less risky. He

By: Lance Winslow l Investing > Stocks l July 11, 2012 lViews: 433

The first step in the risk management process is to acknowledge the reality of risk. Denial is a common tactic that substitutes deliberate ignorance for thoughtful planning.

By: Lawrence Tepper l Investing > Retirement Planning l July 10, 2012 lViews: 240

There is a price to pay for financial freedom you are hoping to achieve with your trading. Alas it is not what you think it is. Hard work has not produced master traders. In fact most people who work

By: Mercedes Oestermann Van Essenl Investing > Day Tradingl June 03, 2012 lViews: 159

By knowing this fact, you, as a person who wants to learn to trade options, are also considered learners, and you can determine your classification as a learner. You must reflect on where you learn

By: Stanley N Collinsl Investing > Day Tradingl June 01, 2012 lViews: 196

Are you searching for steps that can help you find your way into a simple but yet effective options trading? If that is your case, you must be very glad for you have found what you are searching:

By: Stanley N Collinsl Investing > Day Tradingl June 01, 2012 lViews: 175

The Japanese Candlestick pattern of charting in Forex Trading reports is an old one, used since the 1800's. It makes a very easily interpreted visual to explain how trading for the day went. Though

By: Martin K. Brookel Investing > Day Tradingl June 01, 2012 lViews: 142

As if the concept of trading foreign exchange currencies was not enough, now you are bombarded by the notion of being a "technical trader" and learning to "predict" certain occurrences in the Forex

By: Dr R A Bensonl Investing > Day Tradingl May 31, 2012 lViews: 163

If you are going to ask me, there are at least three (3) very important things that all traders, both beginners and veterans, need to focus on when it comes to contract for different (CFD) trading.

By: Frank Barryl Investing > Day Tradingl May 31, 2012 lViews: 123

It is a fact that there are always risks in everything that we enter into even in the most secure financial platform. As a matter of fact, even in the simplest activity that we do in life, risks are

By: Bryan Rollinsl Investing > Day Tradingl May 31, 2012 lViews: 143

Like in anything that we do in our finances, there are several things that we need to ponder on when trading contracts for difference or CFDs. If you are going to ask me, there are at least three (3)

By: Bryan Rollinsl Investing > Day Tradingl May 31, 2012 lViews: 119

Discuss this Article

comments powered by Disqus