What is a contract for difference (CFD)?

A contract for difference (CFD) is a contract between a buyer (i.e. the trader) and a seller (i.e. the broker). The agreement is to pay the “difference” between the value of an asset when the trade was entered into and the value when the trade ends.

CFDs do not entail the delivery of physical goods or securities. Instead, CFDs allow traders an opportunity to profit from price movement without owning the underlying assets. A CFD contract’s value does not consider the asset’s underlying value. Instead, it only considers only the price change between the trade entry and exit.