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Understanding commodity CFD futures

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Hi all,

I am trying to wrap my head around CFD futures. I'll try and define it myself and I would appreciate any feedback on the correctness of my definition.


CFD stands for "Contract for Differences" and allows spot traders to open a position at the market value of a commodity and then close the position at some point in the future at that market value - paying/owing the difference. A CFD futures market allows traders to speculate about the price of a commodity at a certain point in the future. As an example, I bought the following long CFD futures corn contract.


The belief with this trade is that, "As we get closer to MAY-23, I expect the price of corn to increase." In other words, I have bought a "buy" futures CFD corn contract for $639.5 that expires at MAY-23 where the contract stipulates that a one point move correlates to $25 profit/loss. This effectively means I have a 25:1 leveraged position.  If the sell price of corn increases beyond 639.5, I can close the position for a profit (excluding fees) at any point in time prior to the expiry. At the expiry, the position will close automatically.


A few axioms I believe are true (please correct if wrong)

  1. In the above example, I need to maintain $639.5 in equity to prevent being margin called and as an Australian retail trader, I cannot achieve a negative account balance
  2. The futures spread for a given commodity is not variable with the market, rather, it is at the discretion of IG
  3. There are no overnight fees as they are baked into the spread (are there any other futures fees? Interest? How do they work?
  4. Corn ($25) vs Corn ($50) equates to Corn with 25:1 leverage vs Corn 50:1 leverage ( I don't think I fully understand this concept.)

What I don't understand is, in the above example, say the price of corn has risen by 20% 2 weeks from expiry, am I closing at the market value of corn, or the market value of the CFD futures contract? Herein lies my concern, because if the latter, isn't it possible that for some reason, investors expect the price of corn to crash in the next 2 weeks by expiry. In other words, despite the actual price of corn being up 20% 2 weeks out from expiry, if the market expects the price to tank in the subsequent 2 weeks, at 2 weeks out, I might not be able to close with a profit? I suppose that is the innate variability in futures contracts... I hope that makes sense. I would greatly appreciate any help given to my understanding of these concepts.

Cheers, Harry

Edited by Harsturomai
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