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Contracts for Difference (CFD)


What does Contracts for Difference (CFD) mean?

CFDs are a contract between two entities who are speculating on the price movement of an underlying asset.  CFDs do not include the actual delivery of the shares or commodity.  If the underlying asset rises in price, the buyer would receive the value of this price change from the seller, the opposite would be the case if the asset drops in price.  They also differ from futures contracts in that CFDs do not have an expiry date or a set contract size.  Instead, a CFD position is renewed at the close of each trading day.  They may also be rolled forward to the following day if your account has enough margin to support it (ie. the CFD didn't reduce your account balance to the point where a new position can not be entered).

Futures Knowledge Explains Contracts for Difference (CFD)

It's important to understand that when you enter a CFD contract you do not own the actual underlying commodity or financial instrument, they simply mirror the change in price.   Common uses of CFDs are currencies, commodities, stock indexes, or even single stocks.  There is tremendous leverage in CFDs, some contracts only requiring a little as 5% cash requirement (for example a $20,000 position can be entered for as little as $1,000). 



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