You can't walk onto a trading floor and buy a gold bar or a euro. You trade through a broker, and the product they give you access to decides what you actually own, who is on the other side, what it costs and how you're protected. The same view on gold can be expressed in four different ways.
Four ways to trade the same idea
Spot
Spot means trading for (almost) immediate delivery at today's price. In crypto, buying spot Bitcoin means you own the coin. In retail forex, "spot FX" is quoted at spot prices, but positions are rolled forward each night rather than delivered, which is where swap fees come from (chapter 9).
CFDs (contracts for difference)
A CFD is a contract with your broker to exchange the difference in an asset's price between when you open and close. You never own the asset. CFDs let you trade indices, gold, oil, shares and currencies from one account in small sizes. They are widely offered in the UK, Europe, Australia and much of Asia, but not available to retail traders in the United States.
Futures
A futures contract is a standardised agreement to buy or sell an asset at a set price on a future date, traded on a regulated exchange such as CME. Everyone trades the same contract in the same central order book, prices are transparent, and costs are a fixed commission per contract. Most traders close positions long before expiry. Micro contracts (for example Micro E-mini S&P 500) make futures accessible with smaller accounts.
Options
Options give the right, but not the obligation, to buy or sell at a set price. They are a world of their own, covered in Module 10.
| Spot FX | CFD | Futures | Crypto spot | |
|---|---|---|---|---|
| Where it trades | Over the counter | With your broker | Exchange (e.g. CME) | Crypto exchange |
| Do you own the asset? | No (rolled daily) | No | No (a contract) | Yes |
| Main costs | Spread, commission, swap | Spread, commission, financing | Commission, exchange fees | Trading fees, spread |
| Transparency | Broker quotes | Broker quotes | Central order book, real volume | Exchange order book |
| Overnight cost | Swap | Financing | None (priced in) | None on spot |
How brokers handle your order
Behind the scenes, brokers fill orders in one of three main ways. Many use a mix, depending on the instrument and the size of the trade.
- Exchange access (futures, listed options, shares): your broker sends the order to the exchange, where it meets other traders' orders.
- Market maker (dealing desk): the broker quotes prices and takes the other side of your trade. This can work well, but it creates a conflict of interest, which is why regulation matters.
- STP / ECN (no dealing desk): the broker passes orders to banks and liquidity providers and earns a markup or a commission.
Choosing a broker: regulation first
Your broker holds your money. Before spreads, platforms or bonuses, check who regulates them. Well-known regulators include the FCA (UK), ASIC (Australia), CySEC and other EU national regulators, and the CFTC/NFA (US). Good regulation usually means client money is kept separate from the broker's own, and in the UK, EU and Australia retail CFD clients get negative balance protection and capped leverage.
Key takeaways
- Spot, CFDs, futures and options are different products for trading the same markets.
- CFDs are contracts with your broker; futures trade on a central exchange with transparent prices and volume.
- Brokers fill orders through an exchange, by acting as market maker, or by passing orders on to liquidity providers.
- Check a broker's regulation on the regulator's own website before anything else.