Essential

Contract for Difference (CFD)

A derivative product that allows you to speculate on price movements without owning the underlying asset.

Definition

A CFD is a derivative contract between you and a broker to exchange the difference in an asset's price from when you open to when you close the position. You don't own the underlying asset but can profit from price movements in either direction.

How It Works

No ownership of underlying asset
Profit/loss = price difference × position size
Can go long (buy) or short (sell)
Leveraged product - amplifies gains and losses

Types of Contract for Difference (CFD)

Share CFDs

Based on individual stocks

Index CFDs

Based on stock indices (S&P 500, FTSE 100)

Commodity CFDs

Gold, oil, natural gas, etc.

Forex CFDs

Currency pair speculation

Trading Tips

CFDs have leverage - manage risk carefully

You may pay overnight financing charges

Understand margin requirements for each instrument

Related Terms

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