Spot, CFDs, futures and options: what are the differences?
- On the spot market you own the asset; with a CFD or a future you only take a position on how its price moves.
- A CFD usually has no expiry but carries overnight financing costs; a future has a fixed expiry and a standard size.
- An option gives you a right, not an obligation, in exchange for paying a premium.
The same asset can be traded in several ways. Gold, the DAX or an Apple share exist as a direct purchase, a CFD, a futures contract or an option. The price move is the same, but the rules of the game change: what you own, the leverage, how long you can hold the position and the costs. Choosing the right instrument is part of the strategy.
The cash market, or spot
On the cash market, or spot, you buy the asset itself and pay for it in full. When you buy 10 shares in a brokerage account or an ISA, they belong to you. When you buy a Bitcoin on an exchange, you hold the cryptocurrency.
The advantage is simplicity: no expiry, no financing to pay, and a loss limited to the amount invested. The drawback is the capital required: for €30,000 of exposure, you need €30,000. And short selling is complicated, or even impossible, for a retail client.
The CFD, contract for difference
A CFD (contract for difference) is a contract you enter into with your broker. It covers only the price difference between the opening and closing of your position. You never own the underlying asset: you take a position on its movement, up or down.
- Leverage: you only put down margin. In the EU and the UK, ESMA and the FCA cap retail leverage at 30:1 on major pairs, 20:1 on gold and major indices, 10:1 on other commodities, 5:1 on shares and 2:1 on cryptocurrencies. ASIC applies the same caps in Australia.
- No expiry on most CFDs: you can hold the position as long as you like.
- Financing costs: every night, a charge or a credit is applied depending on the direction of your position and current rates.
- Small sizes: a DAX CFD can be worth €1 per point, whereas the official futures contract is worth €25.
- Position
- Buy 1 contract at 24,000 points
- Point value
- €1
- Notional value
- 24,000 × €1 = €24,000
- Maximum retail leverage on a major index (ESMA, FCA, ASIC)
- 20:1, i.e. 5% margin
- Margin required
- €24,000 ÷ 20 = €1,200
A 100-point rise earns €100 and a 100-point fall costs €100, roughly 8% of the margin committed either way.
In the UK, the EU and Australia, CFDs are tightly regulated for retail clients: negative balance protection and automatic close-out of positions when margin falls to 50% of the required minimum, plus a standardised risk warning in the UK and the EU. CFDs, on the other hand, are banned for retail clients in the United States.
Futures contracts
A futures contract is a standardised commitment to buy or sell an asset at a set price on a specific expiry date. It trades on a regulated exchange, such as the CME in Chicago or Eurex in Frankfurt, not directly with your broker.
- Fixed size: the E-mini S&P 500 contract is worth $50 per point, the Micro E-mini $5 per point. You cannot trade a fraction of a contract.
- Expiry: index contracts usually expire every quarter. To keep a position, you have to roll it to the next expiry, which is called the rollover.
- Costs: broker commission and exchange fees, but no daily financing charges, because the cost of carry is built into the contract price.
- Transparency: everyone sees the same order book and the real volumes traded.
Futures margin is set by the clearing house and can be raised when volatility increases. With a notional value of $325,000 for an E-mini at 6,500 points, this market calls for more capital or the use of micro contracts.
Options in a nutshell
An option gives its buyer the right, but not the obligation, to buy (a call option) or sell (a put option) an asset at a set price until a given date, in exchange for paying a premium. The buyer can only lose that premium, while the option seller collects the premium but is exposed to potentially large losses. Option prices depend on time remaining and volatility, which makes them a more complex instrument, best tackled once you have the basics.
The comparison at a glance
| Spot | CFD | Futures | Options (buying) | |
|---|---|---|---|---|
| Ownership of the asset | Yes | No | No, unless delivered | No |
| Leverage | No | Yes, capped by ESMA, FCA and ASIC | Yes, exchange margin | Leverage effect via the premium |
| Expiry | None | Usually none | Fixed | Fixed |
| Short selling | Difficult | Simple | Simple | Via a put |
| Main costs | Brokerage, custody fees | Spread, commission, overnight financing | Commission, exchange fees | Premium, commission |
| Counterparty | The market | The broker | The exchange | The exchange or the broker |
| Maximum loss | Your stake | Your account balance | Beyond the margin | The premium |
Most retail traders in the UK, Europe and Australia start with CFDs, for their flexibility and small sizes. Those trading large volumes on indices often move to futures for their transparency and costs. In the United States, where CFDs are not available to retail clients, futures and spot forex accounts fill that role. Long-term investors stick to spot.
The calculator below shows you the margin required depending on the asset, the size and the leverage. Try it with a share, then with a currency pair: the gap illustrates the difference in permitted leverage.
Margin and leverage calculator
Effective leverage above 10:1: a 1% move against you costs more than 10% of your account.
Check your understanding
0 / 3Educational content, not investment advice. Leveraged trading carries a high risk of losing money rapidly: most retail investor accounts lose money on these products.