Contract for Differences

CFDs allow traders to trade in the price movement of securities and derivatives. Derivatives are financial investments that are derived from an underlying asset. Essentially, CFDs are used by investors to make price bets as to whether the price of the underlying asset or security will rise or fall.

CFD traders may bet on the price moving up or downward. Traders who expect an upward movement in price will buy the CFD, while those who see the opposite downward movement will sell an opening position.

Should the buyer of a CFD see the asset's price rise, they will offer their holding for sale. The net difference between the purchase price and the sale price are netted together. The net difference representing the gain or loss from the trades is settled through the investor's brokerage account.

Conversely, if a trader believes a security's price will decline, an opening sell position can be placed.

• * A contract for differences (CFD) is a financial contract that pays the differences in the settlement price between the open and closing trades.
• * CFDs essentially allow investors to trade the direction of securities over the very short-term and are especially popular in FX and commodities products.
• * CFDs are cash-settled but usually allow ample margin trading so that investors need only put up a small amount of the contract's notional payoff.
• * CFDs allow investors to trade the price movement of assets including ETFs, stock indices, and commodity futures.
• * CFDs provide investors with all of the benefits and risks of owning a security without actually owning it.
• * CFDs allow investors to easily take a long or short position or a buy and sell position.