Welcome to the quiz
- There's no time limit, so you can spend as long as you like on each question.
Which of these contracts offer tighter spreads?
Explanation
Spreads are higher on futures CFDs.
Which of these contracts offer lower overnight funding costs?
Explanation
Overnight funding costs are higher on cash CFDs.
Overnight funding is charged whenever you hold a position past 10pm (UK time) for cash CFDs and futures CFDs.
Explanation
Overnight funding is charged daily for cash CFDs, but is built into the price for futures CFDs.
With their low spreads, cash CFDs are good value for all trades.
Explanation
Cash CFDs are designed for short-term trades. Over the longer term, their higher overnight funding costs can eat into your capital.
If you’re holding a position overnight, it’s always best to use a future CFD as you won’t pay funding charges.
Explanation
It’s true that you’ll save on overnight funding charges with a future CFD, but you also need to consider the higher opening spread. That might mean you need to hold your position for a number of days to make it worthwhile.
You think the price of gold is set to increase gradually over the next few weeks, so you decide to take a position. Which contract should be most cost-effective for your trade?
Explanation
A future CFD will have a higher opening spread than a cash CFD, but overnight funding charges are reduced. So over a period of weeks your costs should be lower with the future.
The US non-farm payrolls are due for release, and you’re poised to trade on the brief volatility in US indices that you expect to follow. You open a deal ticket for a Wall Street futures CFD contract in readiness. Have you chosen a cost-effective way to trade?
Explanation
For an intraday trade like this, where there won’t be any overnight funding costs, you’d be better off with the lower opening spread of a cash CFD.
You’ve been trading the Germany 40 regularly using cash CFDs, but you’re wondering if this is the best-value contract for your strategy. What do you do?
Explanation
There’s no need to base your decision on guesswork – you can easily calculate whether you generally hold your trades for long enough to make futures CFD cost-effective.
You’re considering whether to choose a cash CFD or a future CFD to trade the FTSE. Which overnight funding charges will apply regardless of which contract you choose?
Explanation
On the cash CFD you’ll pay an overnight funding charge calculated like this: Nights held x (market closing price x trade size x (admin fee +/- adjusted ARR)) / 365. For a future CFD, the admin fee doesn’t apply, and the ARR adjustment is built into the price.
Suppose you want to trade on a market where the future CFD spread is 5, the cash CFD is 2 and the daily funding cost is 1 point. What’s the threshold timescale after which it becomes more cost-effective to trade a future CFD than a cash CFD?
Explanation
To work out the threshold, use this formula: (future CFD spread – cash CFD spread)/(daily funding points). So that’s: (5 – 2)/1 = 3
2006-2023