Futures
A futures contract is an agreement to buy or sell a set quantity of something at a set price on a set date, traded on an exchange that stands between every buyer and seller and guarantees the trade. Futures exist for currencies, indices, commodities, interest rates and, more recently, cryptocurrencies. They have standard sizes, often large, fixed expiry dates, exchange-set margins and, in most countries, regulation as exchange-traded products with a central clearing house holding the margin. A retail trader accesses them through a futures broker, typically at a commission per contract, and in the United States they are the main leveraged product retail traders use.
CFDs
A contract for difference is a private contract between the trader and the broker to exchange the difference in an asset's price between opening and closing the position. There is no exchange, no clearing house and no expiry; the position is held as long as the trader pays the overnight financing. Sizes are flexible down to fractions of a lot, which is what makes the product accessible with a small deposit. The broker sets the price, the spread, the margin and the terms, under the rules of its regulator. CFDs are the retail product across Europe, Australia and most of Asia, Africa and Latin America, and are not permitted for US residents.
How a CFD rolls
Many CFDs on commodities and indices are priced from a futures contract, and a future expires. When it does, the broker either switches the CFD to the next contract, applying a cash adjustment so the position's value is unchanged by the price gap between the two contracts, or prices the CFD from a synthetic cash price that blends contracts continuously. Either way a trader holding through the roll sees an adjustment on the statement that is not a profit or a loss, and a chart that may show a jump. The broker's instrument specification gives the roll dates and method.
Which suits which trader
Futures offer exchange transparency, central clearing and a price that is the market's, at the cost of large contract sizes, expiry management and, for most retail traders outside the United States, a separate broker and account. CFDs offer small sizes, no expiry, one account for everything and the broker as counterparty, with all that implies about execution and regulation. A trader in Europe or Asia with a modest account will find CFDs the only practical route; a trader in the United States has futures and rolling spot forex. The choice is mostly made by geography, and the rest is a matter of reading the specification for the instrument in question.
Educational content is general information and does not consider your objectives, financial situation or needs. Forex and CFD trading involves significant risk.