Recently I decided to start trading live. In the interest of easing in slowly, I decided to get a CFD account which gives me access to the contracts I want to trade (SPI, FDAX) and gives me the ability to fund a tiny account, and trade with small amounts.
The hypothesis was, the psychology will at least be closer to trading futures, if not quite there because the amount traded is a lot smaller.
So far I am pleased with my trading, however; it is really confirming to me just how expensive CFDs really are to trade.
Last night I had 5 small trades, each a profitable trade, and it even though it was not the most profitable night so far I was very happy with my trading as it was the first night where every trade went exactly as expected. However, when I break it down and compare what my results would have been had I been trading futures, it is interesting.
Trading FDAX with a 3 tick spread:
Trade 1 profit resulted after spread: 3 ticks
Trade 2 profit resulted after spread: 3 ticks
Trade 3 profit resulted after spread 6 ticks
Trade 4 profit resulted after spread 3 ticks
Trade 5 profit resulted after spread 8 ticks
Net tick profit: 23
However, the CFD provider is taking 3 ticks per trade. Basically on entry with CFDs you start in a loss the amount of ticks the spread they charge is. You need to price to make 3 ticks in your favour just to be break even.
So for those trades above, 3 ticks for each trade should be added to get the real value of ticks the trades gained.
So to make things easy for a comparison to futures, lets assume this is CL and the CFD amount traded is the same as 1 futures contract.
So it is clear the costs associated with trading futures is a LOT less than most CFDs (dependant on the spread).
But there is another issue, and perhaps more important, it screws your probability ratio negatively for hitting trades. If you are already starting 3 points backwards, the probability from that point up to hitting your target is diminished greatly, therefore screwing with where stops, and targets must be placed. This is not so much an issue for anything with a longer time frame than scalping, but it makes scalping nigh on impossible IMO.