Monday, April 25, 2016

What is a CFD (Contract for Difference)?

Contracts for difference (CFDs) are one of the world's fastest-growing trading instruments. A contracts for difference creates, as its name suggests, a contract between two parties speculating on the movement of an asset price. The term 'CFD' which stands for 'contract for difference' consists of an agreement (contract) to exchange the difference in value of a particular currency, commodity share or index between the time at which a contract is opened and the time at which it is closed. The contract payout will amount to the difference in the price of the asset between the time the contract is opened and the time it is closed. If the asset rises in price, the buyer receives cash from the seller, and vice versa. There is no restriction on the entry or exit price of a CFD, no time limit is placed on when this exchange happens and no restriction is placed on buying first or selling first. CFDs are traded on leverage to give traders more trading power, flexibility and opportunities.

CFDs are currently (2016 )available in listed [i.e. mini-warrants and ASX CFDs listed on the Australian Securities Exchange] and/or over-the-counter markets in the United Kingdom, Germany (Differenzkontrakte), Switzerland, Italy (Contratti Per Differenza), Singapore, Thailand, South Africa, Australia, Canada, New Zealand, Hong Kong, Sweden, Norway, Belgium, Denmark, Netherlands, France (where they are known as Contrats Financiers pour Différences) and Spain (where they are referred to as as Contratos por Diferencias (CFDs)) and the US (to non-residents only