Stocks vs CFDs vs Futures vs Options vs Spreads vs Warrants

Contracts for differences have proven to be very popular across the world stock exchanges, leveraging off their main advantages over other established financial market products. CFDs allow traders and investors to profit off changes in the prices of stocks, indices, commodities and other underlying assets.

It is useful to compare the features of CFDs with other geared investment products such as covered warrants and futures before deciding which instrument is best for individual needs. For instance, warrants have a short-term, finite lifespan and require knowledge of how volatility works but are traded on an exchange, whereas contracts for differences theoretically have an unlimited lifespan and need not require volatility calculations but are mostly not traded on an exchange (apart from Australia). Some investors consider CFDs, futures and spread betting as roughly similar products and although it is true that they all basically work in a similar way, there are a number of differences that need to be considered. Futures and spread betting are virtually identical and in fact spread betting providers often base contracts around an underlying futures product although spread bets differ from futures in the sense that they are exempt from Capital Gains Tax.

CFDs are subject to CGT but are more transparent than spread betting and the difference between bid and offer prices is usually always tighter than spreadbets. CFDs also have no minimum deal size or minimum deposit requirement. In the range of financial market instruments used for speculation such as futures, options and covered warrants, contracts for differences are rated higher due to their relatively easier accessibility, lower costs, price simplicity and wider range of underlying instruments.

It is worth noting that CFDs, spread bets and futures are all not subject to stamp duty as they don't involve ownership of the underlying asset on which they are based.