What are CFD's
In finance, a contract for difference (CFD) is a contract between two parties, typically described as "buyer" and "seller", stipulating that the seller will pay to the buyer the difference between the current value of an asset and its value at contract time. (If the difference is negative, then the buyer pays instead to the seller). For example, when applied to equities, such a contract is an equity derivative that allows traders to speculate on share price movements, without the need for ownership of the underlying shares. In effect CFD’s are up (long positions) or prices moving down (short positions) financial derivatives, originally known as Traded Options, that allow traders to take advantage of prices moving on underlying financial instruments and are often used to speculate on those markets.
How CFD trading works?
The difference between where a trade is entered and exited is the contract for difference (CFD). A CFD is a tradable instrument that mirrors the movements of the asset underlying it. It allows for profits or losses to be realized when the underlying asset moves in relation to the position taken, but the actual underlying asset is never owned. Essentially, it is a contract between the client and the broker. Trading CFD’s has several major advantages, and these have increased the popularity of the instruments over the last several years.
CFD - contract for difference
The difference between the buyer and the seller.