CFD's Definition – What is Contracts For Difference? | CFI VU

contracts for difference (cfd’s)

 Contracts for difference, otherwise known as CFDs, commonly refer to an agreement between two parties that permits them to trade on the price movements of various financial instruments.


CFDs are a well-favored method of derivative trading and allow the trader to speculate on the rising or falling prices of fast-moving global financial markets (or instruments) such as stocks, indices, equities, and foreign exchange. One of the key benefits of this form of trading is that the trader can trade on margin and can sell if they suspect that prices will go down or buy if they expect that prices will rise. There are fewer regulations and requirements within the CFD market compared to other standard exchanges.


This means that there are lesser capital requirements involved for a brokerage account and a trader can often open a CFD trading account with as little as $100 and trade values up to 10 times this amount by using leverage.


One of the biggest advantages of the CFD market for traders is that it easily allows the trader to take a long or short position. As the underlying asset or instrument is not physically settled, there are no restrictions on short selling, and no borrowing or shorting costs are incurred. Brokerage fees are often nil or extremely low as the brokers will earn their money through the spread.


Key takeaways:

  • CFDs are cash-settled and a leveraged derivative that allows you to speculate on a variety of products with minimum restrictions and rules.
  • CFDs have gained great popularity over the past 20 years and are among the most common derivatives available for trading.
  • CFDs allow you to speculate on the price difference of an instrument and give traders the ability to go long or short with ease.
CFI Financial Group is an award winning global financial markets provider with over 23 years of experience and regulated entities in several jurisdictions, focused on offering impeccable execution and trading conditions including very low spreads, professional services, dedicated support and powerful tools.
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Important Disclaimer:

We would like to remind that while we endeavour to provide best possible services, CREDIT FINANCIER INVEST (INTERNATIONAL) LIMITED provides execution only services and any information, reports, opinions, commentary or other materials he receives from CFI directly or from its employees or through any analytical tools provided to him or third party research provided to him from the Company shall not be deemed as investment advice and it cannot be relied upon to make investment decisions. The Client commits to make his own research and from external sources as well to make any investment. The Client accepts that CFI will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. The contents of any report provided should not be construed as an express or implied promise, as a guarantee or implication that clients will profit from the strategies herein, or as a guarantee that losses in connection therewith can, or will be limited.

Forex and CFDs are leveraged products that incur a high level of risk and a small adverse market movement may expose the client to lose the entire invested capital. The vast majority of retail client accounts lose money when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. The possibility exists that you could sustain a loss in excess of your deposited funds even if a stop loss is used and therefore, you should not speculate with capital that you cannot afford to lose and be aware of trading risks. Please note that we do not offer our investment /ancillary services to residents of certain jurisdictions such as USA, Sudan, Syria, Republic of Korea and other countries, as those listed to FATF and MONEYVAL recommendations. CREDIT FINANCIER INVEST (INTERNATIONAL) LIMITED provides general information that does not take into account your objectives, financial situation or needs. The content of this website must not be interpreted as personal advice. Please ensure that you understand the risks involved and seek independent advice if necessary.

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