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Trading CFDs on Futures

Trading CFDs on Futures

A Futures contract gives its holder the right to buy (or sell) a pre-determined quantity of a commodity at a pre-set price at a pre-determined time in the future.

Futures contracts originally covered physical commodities like grain, cotton, and coffee, but today they cover more asset classes and many more financial instruments such as currencies, bonds, and stock market indices.

 

Trading CFDs on Futures

Instead of trading directly a Futures contract, you can trade CFDs on Futures. Futures trading allows investors to speculate on the value of a financial instrument going either up or down. But Futures trading is also used by suppliers of commodities wishing to hedge against their market risk. This activity of speculating and hedging creates significant market volume and price volatility. CFDs offer investors the chance to speculate on the price volatility of Futures contracts. Here are the advantages of trading CFDs on Futures.

 

What are Futures Contracts?

A Futures contract is a standardized Exchange-Traded contract that can trade any financial market up or down. Futures contracts can be traded between two parties other than the two initial parties to the contract.

Futures Contracts History

The first standardized 'Exchange-Traded' forward contract was introduced by the Chicago Board of Trade (CBOT) in 1864 and it was based on Grain.

  • In 1972, the IMM (International Monetary Market) became the world's first financial Futures exchange. Initially, IMM launched currency futures. In 1976, IMM launched also US treasury bills interest rate futures.
  • In 1982, IMM launched Stock Market Index Futures.

 

Advantages of CFDs on Futures

Trading futures via CFD contracts can be a more flexible option than trading direct Futures, this is why:

(1) CFD contracts mirror the exact market price movements of Futures contracts in tight spreads, without commissions.

(2) The holder of a Futures contract is obligated to fulfill the terms of his Futures agreement, the holder of a CFD position has no obligations other than his margin requirements.

(3) It is much easier and faster to open an online CFD account than a Futures Trading Account.

(4) You can open a CFD account with as little as $50 and fund it via several different methods, including internet wallets (Paypal, Skrill, Neteller, etc.).

(5) CFDs allow traders to apply automated trading strategies and trade Futures via Expert Advisors.

(6) CFDs on Futures can be traded on Metatrader-4. Mobile trading is also available.

(7) CFDs on Futures don't involve overnight rates (SWAPs) like common Cash CFDs. That is a big deal when trading Index CFDs or Commodities.

 

Chart: (US30) The pricing between a common Cash CFD is almost identical to a CFD on Futures

US30

 

Trading Cost of CFDs on Futures

The cost when trading CFDs on Futures is limited to the price spread, as there are no trading commissions involved. The price spread is the difference between the buying price (bid) and the selling price (ask). That makes things considerably easy for CFD traders. In addition, CFDs on Futures don't involve overnight rates (SWAPs) like common Cash CFDs. That is a big deal when trading Index CFDs or Commodities.

(i) No trading commissions

(2) No Overnight financing (SWAPs)

(3) Paying only the spread

 

Mechanisms of CFDs on Index Futures

Two things matter when you decide to open a trade position using CFDs on Futures:

(1) The direction of the market you decide to trade (long or short)

(2) How many contracts will you buy to cover the required market exposure

Here is how you can determine the market exposure when trading CFDs on Index Futures.

Calculating the Value of an Index CFD

The value of an index CFD is very easy to determine as each CFD contract is worth $1 per point in the index. Therefore, the overall dollar value of one (1) CFD contract is the current index value multiplied by $1.

For example:

  • If Dow Jones Industrial (DJIA) trades at 15,000 points, and you buy (1) CFD contract on Dow, then your overall exposure will be $15,000 ($1 x 15,000 points).
  • To define how many contracts you need to buy or sell on a particular Index you just need to do the following:
  • -Divide the total market exposure you need by the dollar value of the CFD contract.
  • In our previous example, the dollar value of a DJIA is $15,000. Therefore, if you need market exposure of $150,000, you simply need to buy ten (10) contracts (10 x $15,000).

Margin Requirements

As you can probably understand from all the above, the larger in points an index is, the higher the margin requirements to trade it. In other words, trading the DJIA at 15,000 points has triple margin requirements than trading Nasdaq at 5,000 points.

Your exact margin requirements will be determined by your CFD broker. Usually, to buy 1 contract from Dow Jones Industrial, you need $150. Therefore, to gain $150,000 market exposure on US30 you need to have at least $1,500 in your trading account.

 

Compare CFD Brokers and Their Accounts

These are three regulated Forex/CFD brokers offering CFD accounts:

Table: Compare the Accounts and the Asset Index of popular Forex/CFD brokers

 

CFD on FUTURES BROKER

IC MARKETS

IC Markets

ROBOFOREX

RoboForex

  • Minimum Account
  • $200 for a standard account
  • $10 for a standard account
  • Fund Methods
  • Bank Wire
  • Credit/Debit Cards
  • MoneyBookers Skrill
  • Neteller
  • WebMoney
  • More methods
  • Bank Wire
  • Credit/debit Cards
  • Crypto (Bitcoin, Bitcoin Cash, Ethereum, and Litecoin)
  • Skrill, Neteller, CashU, iDEAL
  • Perfect Money, UnionPay, WebMoney
  • Trading Platforms
  • Trade through MT4, MT5 and cTrader
  • Free VPS Hosting
  • Trade through MT4 and MT5 or R StocksTrader
  • Free VPS Hosting
  • CFDs on FUTURES

There are 4 Future Indices available to trade with up to 1:10 leverage. You can trade Futures 24/5 via MetaTrader 4 and 5.

  • ICE Dollar Index Futures (DXY)
  • CBOE VIX Index Futures (VIX)
  • Brent Crude Oil Futures (BRENT)
  • WTI Crude Oil Futures (WTI)

RoboForex offers 3 types of US futures for trading with up to 1:100 leverage. You can trade Futures via MetaTrader 4 and 5 and R StocksTrader.

Trade US Futures at transparent prices from the exchange:

  • S&P 500 E-Mini
  • Nasdaq 100 E-Mini
  • Dow Futures Mini
 

»  Open an Account with IC Markets | » Rating

»  Open an Account with RoboForex | » Review

 

CFDs on Futures

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