What are futures?
A futures contract is an agreement to buy or sell a specific amount of a specific asset at an agreed date. When futures contracts first appeared, the asset (known as the ‘underlying’) was a physical commodity, such as copper or wheat, but today many futures contracts are written on financial assets – such as shares, bonds and currencies.
Futures serve both a hedging role (for example, a food manufacturer can lock in the cost of raw materials for the year ahead) and a speculative/trading one. Contracts always run for a specific amount of time, which varies between markets; some commodities may only have contracts dated for the end of each quarter, while gold has monthly ones.
What is spread betting?
Spread betting is simply a way of speculating on whether the price of an asset will rise or fall. You can gamble on everything from shares and commodities to stock market indices and house prices.
The beauty is that you don’t actually have to buy the underlying asset you want to trade. You just take a view on the prices offered by the spread betting provider as to whether the price will rise or fall.
What are CFD'S
For experienced, frequent traders in financial markets, contracts for difference (CFDs) are an increasingly popular alternative to spread betting. Indeed, in the first quarter of 2009, CFD volumes were up 12% on the same period last year, according to Compeer analysis, as investors went 'short' – i.e. they bet share prices would fall.
Like a spread bet, a CFD allows you to place 'up' and 'down' bets on a range of assets, from shares to currencies and commodities. An 'up' bet involves buying a contract, hoping the price rises in line with the underlying asset and then closing the bet by selling the same contract for a higher price.
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