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I use Futures but I am a novice to Futures. many USA thread members consider Futures a more level playing field when compared to CFD's due to Futures having an open market. Perhaps a more experienced US Futures trader could comment?
I have never traded CFD's either, because they are illegal in the United States.
The reason is simply that you are trading against your broker, not on an exchange where you are buying and selling with other traders. The opportunities for brokers to take advantage of the situation are pretty obvious. (Edit: this is not too different from spot forex, but there is a degree of regulation in the forex market. A large forex broker -- FXCM -- was recently banned from doing business in the United States for trading against their customers, rather than simply providing quotes and liquidity from outside sources, as they claimed.)
The title of this thread is "Eurex Products Advice..." but you would not be trading on Eurex, an exchange, if you traded CFD's.
Can you successfully trade CFD's anyway? I assume you can, but the game is somewhat tilted against you from the start. Just go into it with your eyes open.
There may be an advantage to CFD's in terms needing a smaller amount of money to get into them, but that is actually a danger too. Being underfunded is one of the best ways to lose your entire account quickly, because you can't withstand very many losing trades before you are out.
Be cautious here.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
I'll preface my answer again by saying I have never traded CFD's only spot forex but that was a few years ago. I do know though that CFDs aren't traded on an exchange but the prices are set by the individual brokers like spot forex was when I was trading it so I assuming the platforms are still the same and they also tend to be commission free and making their money from the spread.
The picture below is a DOM for the Nasdaq equity index futures, (NQZ20 current front month).
Apologies if this is all obvious but: The Bid price is 11263.00 with one contract in the order book trying to buy that price. The Ask/Offer if 11263.50 with two contracts showing in the book trying to sell. If you sell with a market order and the price didn't move you would go short at 11263.00 if you sold one contract. If you sold two contracts you would get filled one contract at 11263.00, and one contract a tick lower at 11262.75. But a market order is an order to fill at the first available price for your position in the queue. Therefore by the time your order reaches the exchange the market might have moved and you don't know where you might be filled. The NQ is a thin product and can move fast, I have never traded the DAX but I understand it is faster still. As well as price moving all orders arriving at the exchange are executed in order (some exchange give order queue priority to large orders I believe, maybe some Treasuries, not sure but the CME will have a paper on that somewhere, but most are normal queues. So if somebody bangs in a ten lot short market order for instance just in front of you they will take everything down to 11262.25 leaving your order to start filling at 11262.00.
With futures if I want to buy I can tap in a limit order on the DOM to add to the order book queue and try to buy at any price from 11263.00 down. When I traded spot forex because the companies made their profit on the spread the platforms only had buy or sell buttons to push for market orders, or you could set a panel to enter a limit order but it had to be say at least ten or twenty ticks, or pips, away from current price, same for the exit order.
So none of this really matters, whether you pay a cost in the spread or a small commission, if you want to trade relatively infrequently for large targets. But if daytrading and especially scalping, you trade futures because you can place trades where you want and the exchange matches prices and the futures broker just facilitates the trade/provides margin. I have seen you say what tools you think might be useful for your trading, but not what sort of timeframe you imagine holding your trades for.
With US futures such as the NQ the CME is the exchange that sets the price of the products and manages the orders. You hit buy and the order goes to your broker, they send it to the CME and the CME computer place it in the queue and match it then fill it. All the orders go to them as there is one exchange.
With CFDs there is no central exchange. Each individual broker makes their own price and they take the opposite side of your trade. They offer you liquidity and the ability to trade by making a market for you and allowing you to trade with them.
Traditionally futures contracts were very large with high tick values, CFDs and spot forex allowed retail traders to get into the trading arena "commission free" trading mini or micro contracts. So a futures forex contract might have been $10/tick, but a mini spot forex contract could be traded at $1/pip, or a micro contract at $0.10/pip. Much less risk for those with small accounts.
Futures markets are now offering smaller contracts in some products to try and gain some of that business such as micro equity index futures.
Most day traders lose money so a company taking the opposite side of your bet is likely to make money anyway, but they are also making the spread on every single trade. I assume that they don't take the opposite side of your trade and hold it until you get out, but all their positions are just bundled together in their system for a contract, like the NQ and they just buy and sell from their holding to fill whatever customer order comes in, and presumably they have a first in first out type system so they are covering the contracts as quickly as possible to reduce holding time so just making the spread as much as possible and not benefiting or losing too much on directional moves. They might have one set of products that is having a very directional day so retail traders are keener trading one way or the other, but I imagine their books are being monitored in real time to ensure their holdings aren't biased too much in one direction, and perhaps if that happens they also offset risk by taking a hedge in the futures market in that product until they can bring it back to neutral. That's just me surmising what would sound logical. At the end of the day though they will have traders placing thousands of trades across a large range of contracts of different product types, and they will be collecting the spread on every trade and raking it in.
Trading the NQ rather than the ES. I like Jigsaw trading platform (The DOM pictured above). Tradovate are a good futures broker, or TSTrader through Topstep trader, a funding company.
But to be honest I am not quite in profit yet, but do feel I am finally well on the right track for a style of trading that is compatible for me and that I can execute calmly and without fear of loss preventing me clicking the mouse.
Not sure of your experience or how long you have been interested in this, but always bear in mind that most people lose money or give up quickly. Unless you are very unusual it will probably be a very long road best thought of as an interest that is likely to cost you money for a while (though that doesn't have to be blowing out accounts if sensible), and very few actually turn the corner to make consistent money.
Not meant to be a lecture. Good luck
You do not win as a trader, you just get to play again the next day. If that game doesn’t appeal to you then you should not trade. Gary Norden
Thanks for the info. One point - if the actual CFD moves and tracks exactly the same as the underlying exchanged product with my broker would you consider this being a massive issue? The broker is a well known one within the UK.
I am carrying out my analysis on the underlying exchange product so I can see footprint, delta, order flows and DOM etc.. then carrying out the execution on the CFD
I am mostly SIM trading at the moment, or very small amounts on CFDs as I am able to reduce my risk to really low levels. My plan is to be profitable with small amounts then slowly ramp up the risk or move to a futures contract/mini on underlying exchange.
Thanks for the heads up - always appreciated Cheers.
These are NOT overnight margins.
I note that I can trade Micro Futures on a small account on an open market (CME) whereas I might have less freedom ( due to account size) to trade full Futures or other instruments.
But that is not a problem since I feel more at ease within an open market and I trade just one instrument.
My only wish is for a USA type broker like those mentioned above , to open a UK office so that we (UK and maybe other Euro countries) can trade Micro's etc AND can fund an account using debit card or SEPA rather than expensive wire etc. I think, with the advent of the Micro's etc. that there is an untapped market for a FUTURES broker in the Uk/Europe to cater for us small time scalpers etc.
Even IB, which has a UK office insists on Wired funds!
Timeframes I am looking at 30minutes to 1 hour per trade.
The broker I use does state on their website that "We hedge only when overall client exposure is skewed in one direction" So looks like you are correct Matthew. So I assume for instance if the market is trending down drastically and most of their clients are correctly shorting/selling. How would they "hedge" in this situation - I assume they would be placing short orders into the market to hedge against all the clients who have "Sold" to them I.e. they have a high "buy/long" position overall so need to short against this in line with their clients?
Cheers I'll check that setup out - I am more or less taking it as you say as an "interest" or hobby and slowly trying to gain knowledge hear and there. I'd be interested to know how you have developed in terms of turning the corner in terms of any advice/websites or strategies you think I should be looking into.
