CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

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  • What is a contract for difference (CFD) and how does it work?

What is a contract for difference (CFD) and how does it work?

A Contract For Differences, or CFD, is a financial product that allows a trader to profit from changes in the price of an underlying asset. So, what does CFD stand for in terms of trading? CFDs allow you to trade stocks, indices, commodities, forex pairs, and cryptocurrencies, among other financial markets. You never buy the assets; instead, you trade on their price rising or falling, usually over a short period of time. Traders can choose whether to open a long or short position when they open a CFD trade. A long position is when a trader buys into a trade in the hopes of seeing the stock rise in value: In CFD stock trading, a long CFD contract gives the trader no rights to acquire the underlying share. He has no shareholder rights, but he does receive dividends and capital returns. A short position is when a trader sells to enter a trade in the hopes that the price of the shares will fall: A short CFD trade allows the CFD trader to profit from falling stock prices without having to deliver the underlying stock at any point.

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