Single stock futures or spread trading? How to weigh up the differences

Julie Brownlee, Fsp Invest, 09 Dec. 2014

Tags: trading, trading tools, single stock futures, spread trading, differences between futures and spread trading,

If you’re looking for a trading tool to speculate on the movement of share prices, which one do you opt for?

Two of the most popular trading tools are single stock futures and spread trading.

So what are the differences? And which one is best suited to you?

Let’s take a closer look…

The advantages of spread trading over single stock futures

Many traders, especially those new to it, find spread trading easier to understand.

When you spread trade, you decide how much you risk per point. This can make working out your total exposure and gains or losses easier in comparison to single stock futures.

With single stock futures, you have to think about the contract size in lots of 100 and the different prices of contracts.

Not only that, many traders find spread trading platforms easy to use. And some spread trading companies even offer guaranteed stop loss facilities (at a cost) which is a good option for beginner traders.

You can trade a wide array of financial instruments with spread trading

Spread trading opens the door for you to trading international markets and commodities easily. Many traders find this an easier option than using futures.

You can also trade international currencies with spread trading. If you use currency futures, you can only trade the rand against the major international currencies.

Spread trading companies tend to host a wider range of contract types, maturity dates and underlying asset classes.

If you’re a more experienced trader, futures trading may hold more of an appeal. And the spread can be tighter on futures trading. But the spread is where spread trading companies make their money.

If you’re trading small amounts spread trading is more suitable to that. But if you’re trading larger amounts, futures can be the better option for you.

The major difference between spread trading and single stock futures

Trading single stock futures goes through a regulated exchange, whereas spread trading is between you and a spread trading company.

As spread trading companies are the market maker, prices may be less transparent than trading futures.

Deciding between the two really boils down to what you want to trade and what way you find easier to understand.

So there you have it, how to weigh up the differences between single stock futures and spread trading.

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