SQFs
vs CFDs

Contracts for Difference (CFDs) and Spot-Quoted futures (SQFs) both allow traders to take directional exposure to price moves in the financial markets. But, there are also differences between the two and appreciating what those are can help you to make a better-informed choice.

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Contracts for Difference (CFDs) and Spot-Quoted futures (SQFs) offer different ways to approach the same goal. Both are derivative products which allow you to trade with margin and without owning the underlying asset, But they operate in fundamentally different ways.

This guide will break down their similarities and key differences, helping you to decide which instrument aligns best with your trading style.

What Is a Contract for Difference (CFD)?

A CFD is an agreement between you and a broker to exchange the difference in an asset’s price from when you open to when you close the position. CFDs support trading using margin and gaining exposure to a market without owning the underlying asset.

A quick refresher on CFDs

CFDs are over-the-counter (OTC) agreements between a trader and a broker. These instruments enable you to speculate on price movements with the use of margin trading. When trading CFDs, you’re essentially trading on the difference between the price at which you open a trade and close it, and your contract is directly with your broker.

Consider this example:

You believe Company X’s shares, which are currently trading at $100, will rise. You open a long CFD position for 100 shares with 20% margin. Because you are using margin, you will have to post $2,000 of collateral with your broker to gain exposure to a position with a value of $10,000. If the price rises to $110 and you close the position, your profit is the 10% gain on the original position of $10,000 = $1,000, minus any trading costs.

Conversely, if the price falls to $90, you’d lose $1,000 plus costs.

If you had traded without margin and used your $2,000 dollar to open a position with a value of $2,000, and the price had fallen by 10%, then the loss on your trade would have been $200 minus costs instead of $1,000 minus costs.

CFD overnight financing fees

When you hold CFD positions beyond the trading day, your broker will charge a financing fee to compensate them for the capital they’re effectively lending you through margin. The fee is typically based on a benchmark interest rate and calculated daily on your position’s full value.

What Is a Spot-Quoted Future (SQF)?

An SQF is a futures contract traded on a regulated exchange. It is priced like the underlying asset and the contract represents an obligation to buy/sell the underlying asset at a set price on a specific future date.

Spot-Quoted futures represent a significant evolution in futures trading. Unlike traditional futures that trade at their own supply-demand driven prices, SQFs prices track those in the underlying instrument, making them more intuitive for traders.

SQFs are standardised financial contracts that are traded on high profile exchanges such as the CME Group, ensuring transparent price discovery and reduced counterparty risk. They involve centralised clearing where the exchange acts as the buyer to every seller and the seller to every buyer.

Here’s how an SQF trade works:

If you want to gain exposure to the S&P 500 Index, you can buy the Spot-Quoted S&P 500 Index future which in our example is trading at $6,400. You buy 0.01 SQF contracts representing 1 unit of that index with an expiry date of eleven months away. The total exposure of your position will be $6,400 and applying a margin rate of 15% would mean the collateral you would need to place to finance the trade would be $960.

If the price of our position rises to $6,550 at expiry, your profit is $150 minus costs. If the index falls in value by the same amount, your losses would be $150 before costs are factored in. 

An SQF position automatically closes at expiry. You may take a decision to roll your position by closing the near dated future and buying the longer dated one, or you can exit earlier by closing out your position in the contract prior to the expiry date.

SQF financing fees

Financing costs relating to SQFs which are held overnight are posted daily and reported as a separate line item in your account termed the Adjustment Mechanism (ADJ). The ADJ incorporates all the cost of carry elements relating to holding SQFs including overnight interest charges on long positions, and potential interest credits on short positions, and dividends received on stocks which are members of an index.

Key Similarities

Both SQFs and CFDs support trading using margin which does not require full capital outlay on positions. It is also worth considering some of their other similarities.

Margin

Both instruments use margin to amplify your market exposure. Whether you’re trading SQFs or CFDs, you can open a position with a total value greater than your downpayment. This capital efficiency means a $10,000 position might require just $2,000 in margin (at 20% margin requirement), freeing up capital for other opportunities.

No Underlying Asset Ownership

Neither SQFs nor CFDs involve actual ownership of the underlying instrument – you’re purely speculating on price movements. This non-ownership model can suit those applying short-term trading strategies where you want exposure to price movements with a reduced administrative burden.

Long and Short Positions

The flexibility to go long (buy) or short (sell) with equal ease is a defining feature of both instruments. This bi-directional capability allows you to take a view on whether a market will rise or fall.

The ability to go short can also help with hedging existing positions. You may, for example, hold one individual UK listed stock which you think will outperform, but look to hedge the risk of a broader stock market downturn by taking a short position in a UK100 Index CFD or SQF.

Key Differences

While the similarities between SQFs and CFDs are significant, there are also differences between them. These largely boil down to the fact that SQFs are traded on regulated exchanges with standardised terms and expiry dates, while CFDs are flexible OTC products.

Trading Venue

The most fundamental difference lies in where these instruments trade. SQFs are exclusively exchange-traded, meaning all transactions occur on regulated venues. This centralised model ensures complete price transparency – every trader sees the same prices and can access the full order book depth.

CFDs conversely, are OTC products traded directly with your broker. While reputable brokers provide competitive pricing derived from underlying markets, you’re ultimately trading against the broker’s quoted prices rather than in an open market.

Contract Specifications

Standardisation versus flexibility represents another key distinction. SQF contracts come with fixed specifications set by the exchange: each contract represents a specific number of units of an underlying instrument, has predetermined expiry dates, and follows uniform settlement procedures. This standardisation ensures liquidity and simplifies trading, but reduces customisation options.

CFDs offer greater flexibility – you can often trade any quantity (even fractional shares with some brokers), and choose your holding period without expiry constraints. However, this flexibility comes at the cost of standardisation and potentially wider spreads on smaller trades.

Expiry Dates

Perhaps the most operationally significant difference is that SQFs have mandatory expiry dates. These contracts expire on predetermined dates (typically annually), at which point positions must be closed or rolled over to the next contract. This creates additional management requirements, but also provides natural exit points and can reduce long-term holding costs.

Most CFDs have no expiry date, allowing you to hold positions indefinitely (subject to margin requirements and overnight fees). This suits traders who prefer flexible holding periods, but requires careful cost management for longer-term positions.

Counterparty Risk

Operational risk management differs dramatically between these instruments. SQFs benefit from central clearing, where a clearing house (like CME Clearing) stands between all buyers and sellers. This is typically seen as reducing counterparty risk – even if your broker fails, your positions remain secure with the clearing house.

With CFDs, your counterparty is the broker itself. While regulated brokers must segregate client funds and maintain adequate capital, you’re still exposed to broker-specific risk. This became painfully apparent during extreme market events when some brokers faced solvency challenges.

Margin Rates

While CFD margin requirements are set by your broker (subject to regulatory minimums), SQF margins are standardised by the exchange and clearing house.

Market Coverage

CFD markets have been in existence for longer than SQFs’ and, therefore, there are a wider number of markets available. For example, you can use CFDs to trade single stocks, but SQFs do not currently support that market.

Understanding these differences is crucial, but seeing them side-by-side can help to crystallise your decision-making.

Factor	SQF	CFD
Venue	Exchange-Traded	Over-the-Counter
Expiry	Fixed Expiry	No expiry typically
Standardisation	Standardised	Flexible
Pricing	Market Price	Broker Spread
Counterparty Risk	Minimal Risk	Broker Risk
Costs	Spread + ADJ	Spread + Overnight Fees
Transparency	Full Market Depth	Broker Quotes

Who Should Consider Trading SQFs?

SQFs suit traders who value transparency, standardised contracts, and minimal counterparty risk. They’re ideal for those seeking efficient financing for medium-term positions.

The SQF trader typically exhibits several characteristics. First, they prefer the transparency and regulation of exchange-traded products, valuing the ability to see real market depth and participate in true price discovery. These traders often have experience with other exchange-traded derivatives and appreciate the standardised nature of futures contracts.

SQF traders often prioritise the importance of counterparty risk. Whether due to large position sizes or risk management policies, these traders value the security of central clearing and exchange regulation. This includes institutional traders, sophisticated retail traders, and those who have unfortunately experienced broker-related issues with OTC products.

Final Thoughts

The choice between SQFs and CFDs ultimately depends on your specific trading objectives, risk tolerance, and preferred trading style.

Many traders use both, selecting the appropriate tool for each specific trading decision. As you develop your derivatives trading skills on eToro, understanding when to use each instrument will enhance your ability to execute your trading plan effectively.

Visit the eToro Academy to learn more about the different instruments you can use to trade.

FAQs

What happens when my Spot-Quoted futures contract reaches its expiry date?

At expiry, your SQF position will be cash-settled based on the final settlement price. You’ll need to either close the position before expiry or roll it over to a longer-dated futures contract if you wish to maintain exposure. Your broker will typically notify you ahead of expiry, but monitoring events using an Economic Calendar is advised.

Which has more transparent pricing, an SQF or a CFD?

SQFs offer more transparent pricing as they trade on regulated exchanges where all participants can see the full order book and market depth. CFD prices, while derived from underlying markets, are quoted by individual brokers without visible market depth.

How do margin calls work differently for SQFs versus CFDs?

While both use margin systems, SQFs typically employ standardised exchange margin protocols while CFDs apply broker-specific margin rules. Both require you to maintain adequate margin to keep positions open.