What is a Contract for Difference (CFD)?

Contracts for difference are usually made broker with investors an agreement in which one party will pay the other the difference in the value of the securities at the beginning and end of the contract. If the price increases, the broker will pay you the appreciation portion, and if the price decreases, you will pay the broker the depreciation portion.

Where have you heard about CFDs?

CFDs were originally traded between financial institutions such as banks. In recent years, it has become increasingly popular with retail investors because it can trade without holding any securities.

What you need to know about CFDs...

If you trade CFDs, you will want to know the price more deeply than the broker. CFD brokers operate in markets that are generally less tightly regulated than the actual securities trading market. This means you don't need to invest more money. In fact, you only need to put in as little as 2% of the contract value margin. This indicates that you are using leverage to generate higher returns. However, if the investment fails, leverage may expose you to higher risk.