What is a CFD?
“A contract for difference (CFD) is a contract between two parties in which one pays to the other a sum of money based on the difference between the current value of a security or instrument and its value on a specified future date. If the difference is the opposite of that specified in the contract i.e. it is negative not positive, payment is made in the opposite direction.”
CFD trading allows you to back your judgement as to whether you think a financial instrument will go up or down in value.
When you trade CFDs you’re essentially speculating on the future price of the underlying asset, unlike traditional shares trading you don’t physically own the asset.
Defined a different way, a contract for difference is an agreement to exchange the difference in value of a financial instrument between the time at which it is opened and the time at which it is closed. Your profit or loss is determined by the difference between the price you buy at to the price you sell at, multiplied by the amount of contracts you hold of course.
