The Difference Between CFD And Futures Trading In Norway
Norway is one of the world’s leading oil and gas exporters, making it a popular destination for investors looking to exploit these natural resources. As such, there are many ways to participate in the Norwegian markets, including CFD and futures trading. Despite having some similarities, such as both being types of derivatives that allow traders to speculate on price movements without possessing the underlying asset, they are, in fact, quite different in their strategies and trading methods. This article will discuss key differences between CFD and futures trading in Norway to help you decide which is correct.
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The critical difference between CFD and futures trading lies in applying leverage. In both cases, when you trade derivatives, you do not own the asset but make a bet on its future price movements. However, with CFDs, traders can buy or sell more significant positions than they can afford by taking advantage of leverage. Leverage amplifies potential gains or losses, so using it cautiously and understanding the risks involved is essential.
In futures trading, leverage works differently. With futures trading, traders cannot borrow money from their broker to increase their position size but must have sufficient funds in their account to cover any margin requirements. Therefore, traders cannot take on as much risk when trading futures as they can with CFDs.
There are also crucial differences between CFD and futures contracts. Futures contracts come with rules that specify the underlying asset’s size, delivery date, quality and price. The contract is legally binding; therefore, if one party fails to fulfil their obligations, they may face legal action. On the other hand, CFD contracts have no predetermined expiry date or delivery requirements. Therefore, neither party is obligated to take or deliver the underlying asset at any point, giving traders more flexibility regarding closing positions.
With CFDs, traders can also use the wide range of global assets available. CFDs provide traders access to various markets, which is only sometimes possible when trading futures, from oil and gas to stocks and indices.
The margin requirements for both CFD and futures trading are different. With CFDs, traders can use leverage to expand their position size; however, they are still required to meet the minimum margin requirements the broker sets. Therefore, traders must have enough money to cover losses and maintain the required margin level. It is best to research the margin requirements of different brokers before trading, as they can vary significantly.
In comparison, futures contracts require higher margins since there is typically less liquidity in this type of market. As mentioned previously, traders must also have sufficient funds to cover any margin requirements, and they cannot borrow money from their broker as with CFDs.
The cost of trading CFDs and futures also varies. When trading CFDs, traders are charged a spread, the difference between the buy and sell price. This spread is usually low, although it can vary depending on the asset being traded. Some brokers may charge an overnight fee if you keep your position open for over a day. Traders should also know about additional fees, such as commission and inactivity.
The cost is referred to as a commission for futures trading and is usually higher than CFDs because of the extra risk involved. Traders must be aware of any additional fees that may be required, such as exchange fees or data feed costs. You can check a Saxo broker’s fees on their website.
The tax implications of trading CFDs and futures in Norway also differ. With CFDs, traders must pay capital gains tax when they realise their profits. However, the rate varies depending on the individual’s circumstances and income level. It is best to consult a financial adviser or accountant before trading CFDs in Norway.
For futures trading, traders may need to pay capital gains and VAT taxes on their earnings because the Norwegian government considers futures trading a taxable form of gambling. Traders may need to pay a transaction tax on each trade. It’s important to note that these taxes vary depending on where you are based and what type of asset you are trading.
Trading CFDs can also be more accessible than trading futures because most CFD brokers offer their services worldwide, and many provide online platforms that make it easier to access markets. Some brokers also offer mobile apps so traders can trade wherever they are.
On the other hand, futures trading is usually only available through a few exchanges in Norway. Therefore, traders must find an exchange to access and use their services. Traders may also need to pay a membership fee to trade on certain exchanges.