What to choose: CFD contracts or gold futures

Economic and geopolitical instability is driving more and more people to invest in precious metals.

Gold bars are extremely popular, while many investors prefer to buy gold on the exchange.

Buying precious metals on the exchange is much more profitable and easier than dealing with physical bullion; you invest in gold because you don't have to worry about how to keep the bullion safe.

But when trading the XAU/USD exchange asset, the question arises: which option should you choose: standard futures or contracts for difference?

A type of contract for long-term investment in gold

What's the difference between classic futures and CFDs, given that both are used on a trader's trading platform?

Futures – have a limited contract lifespan, usually a month or a quarter, with leverage rarely exceeding 1:5.

CFD contracts offer unlimited trading periods, leverage for precious metals is typically 1:100, and there are more options for choosing trade sizes.

That is, due to the limited lifespan of the contract, futures are absolutely not suitable for long-term investments.

Gold usually rises in price over the long term, but despite the upward trend, price falls can also occur.

As a result, you often end up in a situation where you open a gold futures contract, but during the contract's life, the price falls and the expiration occurs at an unfavorable price. If you had used a contract for difference, this situation would have been avoided, and you could have sold the gold at the most favorable price even a year later.

Perhaps gold futures might be suitable for day trading?

Yes, futures contracts are quite suitable for short-term trading, since when trading intraday you need to pay attention to the contract expiration dates.

But this also has its drawbacks: due to the low leverage, it is impossible to use scalping on gold ; you simply won’t be able to earn much using only your own money.

Due to the greater versatility and practicality of contracts for difference, they have practically displaced standard futures from speculative trading.

Today, you can open gold trades using CFDs with brokers such as Alpari and Roboforex .