Ownership: what you actually hold
A stock is an ownership share in a company. FINRA explains that shareholders can receive a dividend when the company chooses to pay one, and sometimes voting rights. A CFD is a derivative contract on a price. The FCA describes it as a complex instrument that lets you speculate on the price of an asset, so it carries no ownership of the asset itself. A futures contract, according to the CFTC, is an agreement to buy or sell an asset at a future date, at a price and quantity fixed in advance. Futures trade on exchanges with standardized terms, and a clearinghouse acts as the counterparty to every trade.
Leverage and margin
In an ordinary stock purchase you pay the full price, and the broker must receive payment by settlement. With a CFD you deposit margin, and in the EU ESMA limited retail leverage to between 30:1 and 2:1 depending on the asset, with 5:1 for individual shares. With futures, according to the CFTC, you post margin that is typically 2% to 10% of the contract value. The CFTC stresses that this is not a down payment as in buying stocks on margin, but a performance bond meant to ensure you can meet your obligations.
Costs
With foreign stocks the main costs are trading commissions, currency conversion and taxes. The US Securities and Exchange Commission notes that international investing can cost more than investing at home. With a CFD there is a spread and sometimes a commission, plus overnight funding when held beyond the day. The FCA notes that overnight funding can be a substantial ongoing cost for longer holdings. With futures, according to the CFTC, positions are revalued every day at market prices, and when the account falls below the maintenance level you must deposit additional margin. That is not a fee, but it is a cash requirement to plan for.
Holding period and expiry
A stock has no expiry date. You can hold it as long as the company exists and trades. A futures contract ends on a fixed date. According to the CFTC, most contracts are designed to end in actual delivery of the asset, some allow cash settlement, and most contracts are closed before the delivery date. Closing is done with an offsetting trade, and the clearinghouse lets the position be offset. A CFD usually involves no delivery of the asset, but holding beyond the day carries a funding charge. That is why a long CFD holding can add up to a high cost.
Risk and possible loss
FINRA reminds investors that stock prices can fall, sometimes sharply. With a CFD, leverage multiplies losses, and the FCA warns it can put you at risk of losing more than your initial investment. In the EU and the UK, negative balance protection limits a retail client's loss to the funds in the CFD account. With futures, the CFTC writes that many individuals lose all their money and can be required to pay more than they originally invested. All three products carry a risk of loss, and with leveraged products it can be fast and large.
In which of the three do I own the asset?
Only with a stock. A CFD is a derivative contract on the price, and a futures contract is an agreement to buy or sell at a future date.
Is futures margin a down payment?
No. According to the CFTC it is a performance bond, typically 2% to 10% of the contract value, not a down payment as in buying stocks on margin.
Why can a long CFD holding be expensive?
Because funding is charged for every night. The FCA notes this can be a substantial ongoing cost for longer holdings.
This information is for learning and comparison, not investment advice. Verify product details and eligibility conditions against the current source.
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