contractsfordifference

Contracts for Difference (CFD) are a financial derivative that lets traders speculate on price movements of an underlying asset without owning it. An agreement between trader and broker specifies that the difference between the asset’s opening and closing prices is exchanged. If the price moves in the trader’s favor, the broker pays the positive difference; if it moves against them, the trader pays the loss.

CFDs cover equities, indices, forex, commodities, and cryptocurrencies and are typically traded over the counter on a broker’s platform. There is no transfer of ownership to the asset. Most positions are cash-settled and reflect a multiple of the asset’s price through contract size and leverage. Traders usually do not take physical delivery of the underlying instrument.

Leverage is a key feature, allowing large exposures with a relatively small initial margin. While leverage can magnify gains, it also magnifies losses and can result in losses that exceed the initial deposit. Costs include bid-ask spreads or commissions and financing charges for overnight positions. Some share CFDs may include dividend adjustments. Margin requirements and fees vary by instrument, broker, and regulatory regime.

Regulation of CFDs varies by country. Many jurisdictions impose limits and consumer protections for retail clients; in some places, CFDs are restricted or banned for non-professional investors. CFDs are complex, high-risk products and are generally considered unsuitable for inexperienced or risk-averse investors.