Options vs. Futures vs. CFDsSome background helps
Three ways to take a leveraged view, with one structural difference that decides everything: only one of them caps what you can lose.
The difference that matters
- All three give leveraged exposure with a small amount of capital. That similarity is why they are marketed interchangeably.
- Only a bought option has a defined maximum loss. Futures and CFDs are linear: the loss continues as far as the market goes, and the position is closed by a margin call rather than by a cap.
- Everything else — cost, tax, venue, counterparty — is secondary to that single structural fact.
The comparison
| Bought option | Future | CFD / spread bet | |
|---|---|---|---|
| Maximum loss | The premium paid | Unbounded | Unbounded (retail: capped at account) |
| Payoff | Asymmetric, convex | Linear | Linear |
| Counterparty | Clearing house | Clearing house | The provider |
| Where it trades | Exchange | Exchange | Bilateral with the provider |
| Price transparency | Public order book | Public order book | Provider's quote |
| Main cost | Premium (time value) | Spread plus financing in the basis | Spread plus overnight financing |
| Time decay | Yes — works against buyers | No | No, but financing accrues daily |
| Expiry | Fixed date | Fixed date, roll required | None — position runs indefinitely |
| Contract size | Standardised, often large | Standardised, often large | Flexible, very small possible |
| Retail loss statistics | Not published | Not published | Published: typically 65–80% lose |
Where the money actually goes
- An option buyer pays time value, which decays and is gone at expiry whether or not the view was right. The pricer shows how much of the premium is that decay.
- A futures holder pays financing inside the basis — the forward price already contains the cost of carry. It is not billed and it is not free; the fair-value tool separates it out.
- A CFD holder pays an explicit overnight financing charge on the full position size, plus a spread wider than the underlying market's. At high leverage and daily turnover this is the dominant cost.
Margin: the same word, three different mechanics
- Bought options require no margin — the premium is paid in full and there is nothing further to call. This is the clean case.
- Sold options and futures require initial and variation margin, called daily by a clearing house. The margin-call simulator shows how short the distance usually is.
- CFDs require margin set by the provider, with retail leverage capped by regulators in the EU and UK, and negative-balance protection mandated for retail clients.
- In all three, a gap defeats a stop. Overnight and weekend moves skip the level entirely — the mechanism that produced client debts at several providers in January 2015.
Which instrument for which job
- A defined-risk view with a deadline → a bought option. You know the maximum loss on day one, and the deadline is explicit rather than implied by a margin call.
- A large, cost-efficient, transparent exposure → a future. Cleared, publicly priced, and the cheapest way to move size. The constraint is contract size and the need to roll.
- A small position size or an exposure with no listed contract → a CFD or spread bet, accepting a single counterparty and a quote the counterparty makes.
- Income from a view that nothing much happens → selling options. This is the one to size most carefully: the premium is compensation for a tail, not a yield, and sizing it as income is how short-vol positions end.
The honest summary
The published retail loss statistics for leveraged linear products are the most rigorously verified numbers in retail finance, they are stable across firms and years, and they are the base rate for that category. The instrument is not the problem — position sizing at high leverage is, and the arithmetic of a 1.3 bp spread against 100× gearing makes frequent trading difficult to survive regardless of skill.
Information and education only. Leveraged instruments can lose considerably more than the amount deposited. This page compares structures and is not advice, not a recommendation to use any of them, and not a suggestion that any is suitable for you.