CFD vs futures explained: key differences UK traders should understand

This guide offers a balanced comparison of CFD trading and futures trading, covering the mechanics of each, their respective costs and what UK traders should weigh before choosing between them. Neither instrument suits everyone, and both carry substantial risk, particularly when leverage is involved.

Risk warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Around 80% of retail investor accounts lose money when trading CFDs according to data from the Financial Conduct Authority (FCA). You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

What is a CFD?

A contract for difference, or CFD, is an agreement between a trader and a provider to exchange the difference in the price of an asset between when the contract is opened and when it is closed. You never own the underlying asset. Instead, you are taking a position on whether its price will rise or fall.

Trading CFDs, in practical terms, is straightforward: if you believe an asset will increase in value, you open a long position. If the price moves in your favour, you profit from the difference. If it moves against you, you incur a loss. The reverse applies if you go short, expecting the asset’s price to fall.

How CFDs work

When you open a CFD position, you select the asset, choose your position size and decide whether to go long or short. Your provider quotes a buy price and a sell price, and the gap between them is called the spread.

CFDs do not have a standardised expiry date. Most positions can be held indefinitely, though holding overnight typically incurs a financing charge. This makes CFDs flexible for short-term speculation but potentially expensive if they are held for extended periods.

Position sizes are flexible. Unlike futures, which require you to trade in fixed contract sizes, CFDs allow you to trade smaller or fractional amounts. This can make CFD trading more accessible for those with limited capital, though it does nothing to reduce the underlying risk.

What are futures contracts?

A futures contract is a legally binding agreement to buy or sell a specific quantity of an asset at a predetermined price on a set future date. Futures have been used for centuries, originally by farmers and merchants seeking to lock in prices for commodities. Today, futures trading spans commodities, indices, currencies and interest rates.

Unlike CFDs, futures contracts are standardised. The contract size, expiry date and settlement terms are set by the exchange where they trade. This standardisation brings transparency but also means less flexibility in position sizing.

How futures trading works

Futures trading UK participants typically access these markets through regulated exchanges, such as ICE Futures Europe or the London Metal Exchange. When you trade a futures contract, you agree to the terms set by the exchange, including the precise quantity and quality of the underlying asset.

Each contract has a fixed expiry date. As that date approaches, you must either close your position, roll it forward to a later contract, or, in some cases, take or make physical delivery of the asset. Most retail traders close or roll positions before expiry to avoid delivery obligations.

Futures require margin, which is a deposit held by the exchange to ensure both parties can meet their obligations. This margin is marked to market daily, meaning gains and losses are settled at the end of each trading day.

CFD vs futures: core differences at a glance

Both CFDs and futures allow leveraged exposure to price movements, but the similarities largely end there. Understanding the structural differences helps clarify which might align with your trading approach and circumstances.

Contract structure and expiry

Futures are standardised contracts with fixed expiry dates. If you hold a futures position, you must manage expiry by closing or rolling the contract (closing an expiring position and simultaneously opening a new one with a later date). This requires attention to contract calendars.

CFDs, by contrast, generally have no fixed expiry. You can hold a position as long as you maintain sufficient margin and are prepared to pay overnight financing costs. This open-ended structure appeals to traders who prefer not to manage expiry cycles.

Where they are traded

Futures trade on regulated exchanges with centralised clearing. The exchange acts as the counterparty to both sides of a trade, reducing counterparty risk. Prices are transparent and publicly quoted.

CFDs are traded over-the-counter (OTC), meaning you deal directly with your provider rather than through an exchange. The provider sets the prices and is your counterparty. This introduces counterparty risk, as your ability to realise profits depends on the provider meeting its obligations.

Position sizing and flexibility

Futures contracts come in fixed sizes. For example, a crude oil futures contract might represent 1,000 barrels. This can make entry costs substantial for retail traders.

CFDs offer greater flexibility on position sizes. Providers typically allow you to trade in smaller increments, making them more accessible for those with limited capital. However, smaller position sizes do not reduce the proportional risk. For example, a 10% move against you still represents a 10% loss, regardless of the absolute amount.

Costs and fees

CFD costs generally include the spread, overnight financing charges for positions held beyond market close, and sometimes commissions depending on the provider and asset class. These costs can accumulate, particularly for longer-term positions.

Futures costs typically include exchange fees, brokerage commissions and the bid-ask spread. Because futures do not incur overnight financing in the same manner as CFDs, they may be more cost-efficient for some positions held over weeks or months, depending on the specific contract, pricing and market conditions.

Leverage and margin: what to know

Both CFDs and futures use leverage, allowing you to control a larger position with a smaller deposit. While this can amplify gains, it can equally amplify losses, and those losses can exceed the initial margin/deposit you post for a trade. For retail CFD clients, negative balance protection limits losses to the funds in your account.

In the UK, the Financial Conduct Authority (FCA) restricts leverage for retail CFD traders to a maximum of 30:1 for major currency pairs, with lower limits for other asset classes. For example, leverage on equity CFDs is capped at 5:1. These restrictions aim to protect retail traders from excessive risk.

Futures margin requirements are set by the exchange and can vary by contract and market volatility. Retail traders accessing futures typically need to meet minimum margin requirements, which can be higher in absolute terms than CFD margins due to the standardised contract sizes.

Both instruments require you to maintain sufficient margin. If your position moves against you and your account balance falls below the required margin, you may face a margin call, requiring additional funds or forced liquidation of your position.

Regulatory considerations in the UK

CFD trading in the UK is regulated by the FCA. The FCA has implemented measures to protect retail clients, including leverage limits, negative balance protection for retail accounts and mandatory risk warnings. Providers must disclose the percentage of retail client accounts that lose money trading CFDs.

Futures traded on recognised exchanges fall under different regulatory frameworks.
UK traders accessing futures typically do so through brokers authorised by the FCA or equivalent overseas regulators. Exchanges/clearing are overseen under relevant UK market infrastructure regimes (or overseas regimes where applicable). Exchange-traded futures benefit from centralised clearing, which reduces counterparty risk.

It is worth noting that neither regulatory framework eliminates the risk of loss. Regulation aims to ensure fair treatment and transparency, not to guarantee profitability.

Which markets can you access?

CFDs provide access to a broad range of markets, including forex, indices, commodities, shares and sometimes cryptocurrencies. This variety is a key attraction for traders seeking diversified exposure through a single platform.

Futures markets are traditionally concentrated in commodities, interest rates and major indices. While retail access to futures has expanded, the range of available contracts may be narrower than what CFD providers offer. Some assets, particularly individual shares, are not available as futures contracts.

Risks to consider

Both instruments carry significant risks that you must understand before trading.

Leverage risk: Losses can exceed your deposit. A small adverse price movement can result in losing more than you invested, though UK retail CFD accounts typically have negative balance protection.

Counterparty risk: With CFDs, your provider is the counterparty. If the provider fails, you may not receive owed funds. Exchange-traded futures reduce this risk through centralised clearing, but it is not eliminated entirely.

Market risk: Prices can move sharply and unexpectedly. Neither CFDs nor futures protect you from sudden volatility.

Liquidity risk: Some markets or contracts may lack sufficient liquidity, leading to wider spreads or difficulty exiting positions at desired prices.

Complexity risk: Both instruments require understanding of leverage, margin and, for futures, contract specifications. Trading without this understanding substantially increases the likelihood of loss.

CFDs and futures are not appropriate for everyone. You should trade only with money you can afford to lose and only after ensuring you understand how these products work.

Summary table: CFD vs futures