What is a CFD?
A Contract for Difference (CFD) is a financial instrument that allows traders to speculate on the price movements of a wide range of financial markets, such as stocks, indices, commodities, and currencies. CFDs are derivatives, meaning that they are based on the underlying asset, but do not involve the actual purchase or sale of the asset itself. Instead, traders enter into a contract with a broker to buy or sell a certain amount of the underlying asset at a predetermined price.
History of CFDs
CFDs were first introduced in the early 1990s in the United Kingdom as a way for traders to speculate on the price movements of stocks without having to actually purchase the stocks. Since then, CFDs have become increasingly popular as a way to speculate on the price movements of a wide range of financial markets.
CFDs are now available in many countries around the world, including the United States, Australia, and the European Union. In the United States, CFDs are regulated by the Commodity Futures Trading Commission (CFTC).
Comparison of CFDs and Other Financial Instruments
| Financial Instrument | Leverage | Risk | Costs |
|---|---|---|---|
| CFDs | High | High | Low |
| Stocks | Low | High | High |
| Options | High | High | High |
| Futures | High | High | High |
Summary
CFDs are a popular financial instrument that allow traders to speculate on the price movements of a wide range of financial markets. CFDs are derivatives, meaning that they are based on the underlying asset, but do not involve the actual purchase or sale of the asset itself. CFDs offer traders the ability to leverage their positions, but also come with a high degree of risk. For more information about CFDs, traders can visit websites such as Investopedia, The Balance, and Investing.com.
See Also
- Leverage
- Margin
- Options
- Futures
- Stocks
- Commodities
- Forex
- Spread Betting
- Binary Options
- Derivatives
