CFD
You can explore the materials without registering, but with a free account you can track your progress and earn rewards along the way. By the end of your learning journey, you can have the knowledge you need to become a profitable Trader!
Join →What Is a CFD?
A CFD, or Contract for Difference, is a derivative contract whose value reflects the price movement of an underlying instrument between opening and closing the position. We do not acquire ownership of the underlying asset simply by opening a CFD position.
Common Characteristics
- CFDs can provide long and, where supported, short exposure.
- They are commonly offered with leverage.
- Financing or overnight charges can apply when positions are held.
- The trader is exposed to the terms, pricing, and counterparty risk of the CFD provider.
CFDs can be used to trade price movements in shares, indices, currencies, commodities, and other markets, depending on the provider.
Leverage can make a relatively small price movement produce a large percentage change in account equity. This makes position sizing and risk control especially important.
Key Terms
CFD, derivative, underlying, leverage, margin, financing cost, counterparty risk, long, short.
Knowledge Check
- Do we own the underlying asset when we open a CFD?
- What two characteristics can make CFDs particularly risky?
- Why should overnight financing be considered?
