Contracts for difference (CFDs) are commodities that are purely traded. Unlike futures, they have no physical delivery function and do not represent the holding of a real commodity.
The leverage comes from the size of the financing. Due to the large amount of financing available, the contract is more flexible than the futures. However, care should be taken to avoid excessive leverage, and only suitable for short-term operations, because the financing will have overnight interest charges when held for a long time.
1. Differences in contract specifications: Contracts for difference (CFDs) are more flexible. Both CFDs and futures are traded on margin, but futures trading was originally primarily used as a hedge for various manufacturers, while contracts for difference are more likely to be created purely for the convenience of trading, so there is no physical delivery and no maturity issues.
2, the difference in costs: the contract for difference is suitable for short – and medium-term operation, and the futures contract is suitable for long-term holding.
Futures fees: fees, transaction taxes (usually very low), (very small);
CFDS fees: point spread, overnight interest charges.
Spread: BECAUSE there is a lot of competition among dealers, spreads are usually small, mostly below 0.1% on each side (depending on the dealer and the commodity). While this segment may seem low, futures are usually cheaper to trade (relative to the total trade size).
Overnight interest expense: It is usually calculated by dividing the year (2%-6% depending on dealer and commodity) by 365 days. It is usually less than 0.01%. If it is not held overnight, it will not be collected.
