Future or CFD, which financial market to trade?

As an individual, do you want to invest in the financial markets, but you don’t know where to start? In this article, we will go over the CFD market and the Futures market that you can invest in.

Future and CFD, two different investor profiles

You must first know that each of these markets has its interest depending on the size of the capital you have, the time available and the experience you have in the financial markets. Trading in futures, or futures contracts, is more for people who have a fairly large capital, while the CFD market is a little more open to small investors.

The CFD market

The CFD market, for “Contract for Difference”, involves brokers who copy the quotes of the main assets such as indices (CAC40, DAX, etc.), currency pairs (Forex), but also commodities, stocks or even cryptocurrencies.

You have the option to invest up or down, meaning you can sell without owning the stock or index. CFDs are characterized by “leverage”, meaning that you can invest an amount of money that you do not have.

Concretely, with a leverage of 1: 100, if you have a capital of 400 € you can invest up to 40,000 €. So you can win faster, but you can also lose faster. When you master the leverage effect, you can really grow your capital quite significantly.

The Futures market

The Futures market, or futures contracts, requires more capital. It allows an exchange, a direct negotiation between buyers and sellers. The two parties fix the prices in advance with an equally fixed deadline.

To understand the interest of Futures markets, let’s take a concrete example. Imagine a relationship between a farmer and a grain buyer. The harvest season is expected in 4 months. The buyer and seller will come together and set the purchase price for the grain. The buyer will anticipate a rise in the price and he will want to buy lower. The seller will anticipate a potential drop by selling a little higher. So the two parties can cover themselves, the cereals will be sold 4 months later at the price fixed during the negotiations and not at the market price at the time of the sale.

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