Revealed: The five major differences between Single Stock Futures and CFDs

Karin Iten, Fsp Invest, 06 Mar. 2014

Tags: trading single stock futures, trading cfds, difference between single stock futures and cfds, how do single stock futures and cfds differ, trading instrument

If you’re new to trading and still aren’t sure which is the best geared instrument for you to trade, we’re hoping today’s article will help. In it, we explain the difference between single stock futures and CFDs (Contracts for Difference) so you can pick the right trading instrument for you…

To understand the differences, you first need to know what each trading instrument is

Investopedia defines a single stock future (of SSF) as a geared trading “contract with an underlying of one particular stock, usually in batches of 100.” In other words, it’s a standard contract where one single stock future contract gives you exposure to 100 shares of the underlying company.

CFDs, on the other hand, are a geared trading instruments, but in this case they’re not standardised. They trade on a one-to-one basis – giving you exposure to one share.

That’s their first difference. There are four more…

Important differences between these two trading instruments:

Here are some of the main differences according to Stock Market College:

#1: Expiry date:
Single Stock Futures: Have a set expiry date on the third Thursday of March, June, September and December.
CFDs: Have no expiry date. But this mean interest is charged on a daily basis.

#2: Rollover fees
Single Stock Futures: Because futures expire, if you want to extend the life of your trade into the next contract period, you’ll pay a rollover fee.
CFDs: No expiry date equals no rollover fees.

#3: Market freedom
Single Stock Futures: Are part of the free market – they’re standardised.
CFDs: Because CFDs are an over-the-counter contract between you and the market maker, each CFD provider sets its own prices.

#4: Risk management
Single Stock Futures: Are regulated by the JSE. Because of this, the JSE’s risk management structure protects you from undeserved losses.
CFDs: You, the investor, and your CFD provider carry the risk. The JSE won't protect you if the CFD provider defaults on the contract.

So there you have it. Some of the key difference between these two trading instruments. There are others in terms of physical delivery, dividends, etc. To find out more about these trading instruments and which is the right on for you to trade with, get your hands on a copy of The Ultimate Trading Series.

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