Contract For Difference (CFD)

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Contract For Difference
Last modified: May 5, 2021
Estimated reading time: 1 min

Contract for Difference (or CFD) is a type of derivative that gives exposure to the change in the price of an underlying asset.

A CFD is a financial derivative that allows traders to speculate on the price movement of the underlying instrument, without the need for ownership of the instrument.

CFDs are financial derivatives that allow traders to take advantage of prices moving up or prices moving down on underlying financial instruments and are often used to speculate on those markets.

It is a contract between two parties, typically described as “buyer” and “seller” to settle the difference in the value of a financial instrument between the time at which the contract is opened and the time it is closed.

It allows traders to leverage their capital (by trading notional amounts far higher than the money in their account) and provides all the benefits of trading securities, without actually owning the product.

In practical terms, if you buy a CFD at $10 then sell it at $11, you will receive the $1 difference. Conversely, if you went short on the trade and sold at $10 before buying back at $11, you would pay the $1 difference.


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