Contract for Differences (CFD)
A contract for differences (CFD) is an arrangement made in financial derivatives trading where the differences in the settlement between the open and closing trade prices are cash settled. There is no delivery of physical goods or securities with CFDs.
- A contract for differences (CFD) is a financial contract that pays the differences in the settlement price between the open and closing trades.
- CFDs essentially allow investors to trade the direction of securities over the very short-term and are especially popular in FX and commodities products.
- CFDs are cash-settled but use allow ample margin trading so that investors need only put up a small amount of the contract’s notional payoff.