Key Takeaways
A Contract for Difference (CFD) is an agreement between an investor and a CFD broker to exchange the difference in the value of a financial instrument between the opening and closing of a contract.
CFD investors do not actually own the underlying asset, but instead receive a return based on the price changes of that asset.
Some of the advantages of CFDs include the ability to acquire the underlying asset at a lower cost than buying it outright, ease of execution, and the ability to go long or short.
One disadvantage of CFDs is that an investor’s initial position is immediately reduced, i.e., upon entering a CFD, the position is reduced by the size of the spread.
Other CFD risks include weak industry regulation, potential lack of liquidity, and the need to maintain adequate margin.
A Contract for Difference (CFD) is an agreement between an investor and a CFD broker to exchange the difference in the value of a financial instrument between the opening and closing of a contract.
CFD investors do not actually own the underlying asset, but instead receive a return based on the price changes of that asset.
Some of the advantages of CFDs include the ability to acquire the underlying asset at a lower cost than buying it outright, ease of execution, and the ability to go long or short.
One disadvantage of CFDs is that an investor’s initial position is immediately reduced, i.e., upon entering a CFD, the position is reduced by the size of the spread.
Other CFD risks include weak industry regulation, potential lack of liquidity, and the need to maintain adequate margin.