Contract for Differences

Contract for Differences meaning explained by top CFDs experts, Finding out what are Contract for Differences.

What are Contract for Differences?

 A CFD “contract for difference” is a financial instrument by which a broker and investor agree to exchange the difference in the current value of a particular asset and its value at the end of the time period prescribed in the contract. This fluctuation in price is called the “spread.” A Contract For Difference is tradeable and mirrors fluctuations in the value of whatever asset is the subject of the CFD (the “underlier”).  When you invest in a Contract For Difference, you are not purchasing a physical share of any company but, instead, are actually investing in your own (hopefully educated) opinion as to the future fluctuation of a particular asset during a preset period of time. Based upon whatever position you take in the Contract For Difference (whether values increase or decrease) and after the lapsing of that time, the broker and investor share profits (or losses) based on predetermined percentages which are included in the actual contract or Contract For Difference.

Contracts For Differences are considered leveraged instruments since actual ownership interest in the asset is never acquired by the investor.  CFDs allow investors to share in the benefits and risks involved in owning an asset without actually owning it.