What are CFDs?

A Contract for Difference (or as is it more commonly known, CFD) is a contract between an investor and a CFD provider, who will at close of the contract, exchange the difference between the opening price and the closing price of the underlying index, commodity or share, per the number of CFDs, as specified by the contract.

Stepping beyond the technical jargon, a CFD differs from traditional trading methods in that you aren’t purchasing the nominated investment, but trading on its speculated price movement. The running idea of CFDs is the ability to trade in a much higher volume than traditional trading and using substantially less up-front funding.

A buyer will pay commission to enter in to a contract, plus fixed interest on the remaining value of the borrowed amount, until they decide to end the contract, at which time they will be paid the difference in price. A buyer can opt on either the high or the low, meaning that even if the stock loses money the buyer can still turn a profit if that was the stipulated investment.

Follow the links to the left and below if you’re interested in knowing more about CFDs.