Contract for Difference (CFD)
A Contract for Difference (CFD) is an agreement between two parties to exchange the difference in the value of a financial instrument between the time the contract is opened and the time it is closed. CFDs are a type of derivative product, meaning that they derive their value from an underlying asset, such as a stock, commodity, currency, or index. CFDs are traded on margin, meaning that traders can open positions with a fraction of the total value of the underlying asset.
CFDs are a popular trading instrument due to their flexibility and low cost. They allow traders to speculate on the price movements of a wide range of financial instruments without having to own the underlying asset. CFDs also offer traders the ability to go both long and short, meaning that they can profit from both rising and falling markets.
History of CFDs
CFDs were first introduced in the early 1990s in the UK, and have since become a popular trading instrument around the world. CFDs are now available in many countries, including the United States, Australia, and Singapore. CFDs are regulated in many countries, and are subject to the same regulations as other financial instruments.
CFDs have become increasingly popular in recent years due to their low cost and flexibility. They are often used by traders to speculate on the price movements of a wide range of financial instruments, including stocks, commodities, currencies, and indices.
Comparison Table
| CFD | Traditional Investment |
|---|---|
| Low cost | High cost |
| High leverage | Low leverage |
| No ownership of underlying asset | Ownership of underlying asset |
| Ability to go long and short | Ability to go long only |
Summary
A Contract for Difference (CFD) is an agreement between two parties to exchange the difference in the value of a financial instrument between the time the contract is opened and the time it is closed. CFDs are a type of derivative product, meaning that they derive their value from an underlying asset, such as a stock, commodity, currency, or index. CFDs are a popular trading instrument due to their flexibility and low cost, and are now available in many countries around the world. For more information about CFDs, please visit the websites of your local financial regulator or a reputable online broker.
See also
- Options
- Futures
- Forex
- Stocks
- Commodities
- Indices
- Derivatives
- Margin Trading
- Leverage
- Hedging
