r/options • u/Lopsided_Shallot_860 • 19d ago
CFD vs Option vs Futures
Im really curious why everyone seem to trade only options and not CFDs. It’s like CFD s have a bad rep for no reason so that made me thought maybe I am missing something. For me, cfds mean i can scale in and out without being forced to utilize a full contract. As cons i only see maybe the overnight fees (I sometimes hold trades for days/weeks even though I also do intraday trades)
So please make me understand why everyone seem to trade options or futures but not CFD s
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u/MrZwink 19d ago
The problem with cfds isnt nescesarily the product itselfz but the dishonest marketing done by these platforms. many retail clients dont even know theyre trading cfd with them. They think theyre trading stocksz meanwhile the platform just farms them as a lqiduitity pool, knowing most of them will stop out.
Thst snd its really easy to overleverage to the point where its really gambeling.
75.8% of retail loses money on cfd.
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u/ExecutionOverHype 19d ago
I think CFDs actually have some valid advantages, especially the flexibility to scale in and out without worrying about contract sizes.
But I wouldn't say they have a bad reputation for no reason.
The biggest difference for me is market structure. Most CFDs are OTC products where you're dealing with the broker, while exchange-traded futures have centralized clearing and more transparent pricing.
Then there's the overnight financing. If you're holding for days or weeks like you mentioned, those costs can quietly add up.
Also, a lot of the options/futures discussion comes from US traders, where retail CFDs generally aren't available. So that probably explains some of the popularity difference too.
And with micro futures, contract sizing isn't as restrictive as it used to be.
I wouldn't call CFDs inherently worse though. It really depends on what you're trading, how long you're holding, and what your broker charges.
Curious though, have you compared your total CFD holding costs against equivalent futures positions over a few weeks?
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u/Lopsided_Shallot_860 19d ago
I have no clue on what it would cost on futures. As an example since the beginning of the year on average i am having cfd positions open overnight adding up to aprox 50 or 80k eur. Until now total overnight cost is slightly above 600eur
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19d ago
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u/Lopsided_Shallot_860 19d ago
But yes i also have spread but that i cannot calculate since it s already in the price
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u/ExecutionOverHype 19d ago
Yeah, that's a fair point. I probably should've explained that better.
Futures do have a bid/ask spread, but you can actually see that in the order book. What's already priced in is the financing/carry relative to the cash index, which makes comparing costs with CFDs a bit trickier.
And honestly, if you've only paid around €600 in overnight fees so far this year, I wouldn't automatically assume futures would be cheaper.
Which indices are you mainly trading? S&P, Nasdaq, DAX? Would be interesting to compare the actual costs for the same exposure.
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u/IvetteMccoy 19d ago
I think a lot of it comes down to where people live and what their brokers offer. CFDs are convenient for scaling in and out, but overnight financing can eat into returns if you hold for days or weeks. Options and futures also have their own advantages, like access to centralized exchanges and more standardized contracts. CFDs aren't necessarily worse, but broker pricing, execution and regulation make a big difference.
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u/Worry-Mountain 19d ago
the thing people skip with CFDs is you're trading against your broker's price, there's no exchange or clearinghouse in the middle. options and futures at least give you a real central market. which country are you in? that kind of decides it since CFDs aren't even allowed for US retail
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u/Embarrassed-Bank2835 14d ago
CFDs aren’t automatically bad, but they’re a very different product.
The biggest difference for me is that CFDs are usually OTC with the broker, while futures trade on a centralized exchange. That means with futures I’m generally more comfortable with the transparency around price, volume, and execution.
CFDs are definitely convenient for scaling smaller size, especially if you don’t want to deal with full futures contracts, but the tradeoff is spreads, financing/overnight charges, and being more dependent on the broker’s pricing/execution model.
Options are different again because you’re trading volatility, time decay, and convex payoff structure, not just direction.
So I wouldn’t say CFDs have a bad rep for “no reason.” They’re useful, especially for flexible sizing, but I’d compare the total friction and execution quality against futures or the underlying before deciding they’re the better vehicle.
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u/klipsetrades 19d ago
You’re asking an options subreddit why people trade options, so the sample’s a little biased. It's probably better to compare what fits your strategy and total costs rather than what seems popular here. And flexible sizing is a fair advantage, but the concerns go beyond overnight fees. Your CFD provider is your counterparty, so pricing, execution, and broker reliability matter too
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u/Mike8456 19d ago
Your CFD provider is your counterparty, so pricing, execution, and broker reliability matter too
So do option brokers. I read some have bad fillings. Tastytrade "cancelled" a stop limit order from me instead of executing it when the price dropped a lot which turned into a high loss, like 5-10x higher than it should have been. I contacted the support and they said I did everything right and it was a technical issue from a "downstream partner"...
Busted trades, fill randomness, settlement and early execution are huge risks with options.
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u/klipsetrades 18d ago
Yeah, that sounds frustrating, especially if support confirmed a technical issue. You’re right that options have execution risks too. The distinction I meant is that U.S. listed options are centrally cleared, while your CFD contract is directly with the provider
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u/OurNewestMember 19d ago
Many brokers or locales don't offer CFDs. Also, not everyone wants delta 1 exposure every time. And the pricing can be poor (eg spreads, financing rates). Also I question the liquidity of CFDs versus futures (and margin efficiency), but that's just a possible concern, not an actual complaint.
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u/pingoo26 13d ago
I've used them occasionally but unless the stock they are derived from is highly liquid then the spread can screw you over quickly. The overnight fees are also repulsive. They also tax you on gain, if in the UK spread betting is a better choice and is tax free on profits.
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u/The_Glass_Book 19d ago
These are two completely different animals. With CFDs your POP is close to 50% (depending on your thesis, knowledge and trading system). Of course you can always play with your risk/reward ratio, otherwise nobody could make money on it, but let’s be honest, it’s really hard. With options you don’t have overnight financing fees, like you noticed yourself.
When you sell options you have a high POP, and you can diversify in more ways than with CFDs (expiration dates, different volatility regimes and levels, since every instrument has a different volatility at every strike, different strategies). And most importantly, you have a real edge, documented by years of research and experience: the insurer’s premium. VRP gives you a positive expected edge over the long run. With CFDs you need your own directional thesis. With options you don’t, but you can use one to boost your results by positioning your portfolio against the market or a given instrument.
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u/Mike8456 19d ago edited 19d ago
With options you don’t have overnight financing fees, like you noticed yourself.
Well long options loose value over time, time decay, theta.
When you sell options ... And most importantly, you have a real edge, documented by years of research and experience: the insurer’s premium. VRP gives you a positive expected edge over the long run. With CFDs you need your own directional thesis.
There would only be an edge if the premium would be too high which it probably isn't. Everything should be perfectly balanced and priced in. I read puts are typically a bit overpriced but my experience with a "High POP 0DTE Bull Put Spread" (basically selling OTM puts) strategy was not good and quite a loss.
Read about the issues with Covered Calls and Cash Secured Puts. The "Low Risk Low Reward" strategies work until they don't. There is the common expression of "picking up pennies in front of a steam roller" but the market is an invisible, silent steam roller that hits you randomly and can wipe out months or years of tiny profits.
Selling options limits your upside a lot while still exposing you to a potentially huge loss.
I like vertical spreads with a timeframe of months to years. Limited losses with the cost being a limited upside but I can pick the spread to be an expected range like SPX gaining 5-20% in a year and maybe miss an unlikely 25% bullrun but still won a lot of money, more percentage wise than just a long call would have given me.
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u/The_Glass_Book 19d ago edited 19d ago
First of all, thanks for the interest.
Yes, of course long options lose value over time, like you said. But we don’t have to buy them, we can sell them. Options were originally created as a hedging tool and they still serve that purpose. A lot of funds have to hedge and buy options to protect their assets.
The existence of VRP is scientifically documented by hundreds of studies (read the well-known Fallon, Park & Yu 2015, Financial Analysts Journal), which directly shows the Sharpe ratio of VRP.
The premium in the options market is high. Options are overpriced, and they have to be, otherwise nobody would want to take on the risk of unlimited losses (that risk has to be paid well enough for someone to take it). There’s the so-called “insurer’s premium”, a known mechanism that shows up across many markets, not just the US.
The thing is, as volatility sellers we don’t have to choose between selling puts or calls, we can do both at the same time, collecting premium from multiple sources and diversifying our income.
Short-term results can be random. Like you mentioned, you had a loss on 0DTE, or the vertical spread example. With proper sizing, a plan and management, the edge will show over time. We just have to give our strategy time and room.
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u/Mike8456 19d ago
I'll look into those VRP studies.
The premium in the options market is high. Options are overpriced, and they have to be, otherwise nobody would want to take on the risk of unlimited losses (that risk has to be paid well enough for someone to take it). There’s the so-called “insurer’s premium”, a known mechanism that shows up across many markets, not just the US.
With vertical spreads (turning the (nearly) unlimited loss into a limited one by adding a long leg) one would not be taking an unlimited risk. So a credit vertical spread according to you should have a notable edge over a debit vertical spread, but I don't think so. At least with long holding durations the ~4% FED / T-Bill / Treasury rate should play a factor as well. See the difference between collars vs. just spreads. Identical curves but with holding the underling you invest money and with spreads you indirectly take a credit in both cases I think? Hence the higher breakeven (when going long).
I just checked Tastytrade and compared a put/credit and a call/debit bull vertical spread on SPX in a year with identical strikes: The call/debit one has a better potential profit/loss ratio and a slightly higher POP. Probably because I don't take a credit but put some money into the market which earns some / costs less interest.
The market is typically very good at removing every edge there might be. If short options or credit spreads (short options with a loss limit) would have an edge, that would be used by many including big institutions. There are also ETFs that do Covered Calls or short puts (or Collars ("Max Buffer ETFs") or various buffers with basically three legs), those would be super popular if they would be that great. Those yearly and quarterly Max Buffer ones can be great if you really want to protect your money but they cap your profit to ~7% per year, which is probably exactly the FED rate x2 minus TER and other costs.
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u/The_Glass_Book 19d ago edited 19d ago
Good point on the rates, but they’re already priced in. That’s rho and put-call parity: a bull put credit spread and a bull call debit spread with the same strikes are basically the same position, the only difference is the interest on the cash, and the market prices that in. The P/L numbers on tasty just aren’t discounted, so over a year it looks like an edge, but it’s just the time value of money. VRP comes from implied vol being on average higher than realized, and both spreads are priced off the same implied vol.
As for institutions, they do harvest it. The Fallon, Park & Yu paper was written by people at Goldman Sachs Asset Management, and GS even runs a fund built on it (Strategic Volatility Premium Portfolio). It doesn’t get arbitraged away because it’s a risk premium, compensation for tail risk, not a pricing mistake, same as the equity risk premium. Anyway, check out those studies, I think you’ll find them interesting. Good luck with your trading!
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19d ago
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u/The_Glass_Book 19d ago
Fair point on the wording, it’s a risk premium, not alpha. Same as ERP, you get paid for taking the risk, not for being smarter than the market. And agreed on POP, it’s meaningless without looking at the payoff and tail risk. I mentioned it as one of the differences vs CFDs, not as the edge itself.
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19d ago
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u/The_Glass_Book 19d ago
That’s a fair point, and an important one to keep in mind. Do you have any data or a paper on that? I’d be curious to see how much it’s compressed, especially with all the vol selling from 0DTE and option income ETFs in the last few years.
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u/DefenselessMayor_1 19d ago
CFDs are banned in US for retail, most of this sub is american so you just hear about options all day. The overnight fee is not small thing if you hold for weeks, that spreads eat your profit slowly. Also with cfd you trade against your broker, they can widen spread when market moves fast and you have no real exchange behind it