What is a CFD?

CFD stands for Contract for Difference in the financial markets. They can also be referred to as financial derivatives because they are a contract between the buyer and a seller with regards to the asset under question at the time of signing up the contract and the time decided when the payments shall be made. This is also called the term of the CFD. 

The seller pays to the buyer if the difference is positive. However, in case the difference between the current value of the asset and the value at the time when the contract finishes is negative, the buyer needs to pay the seller. 

CFD kind of trading is done in various countries including Australia. Some of the other countries include UK, Hong Kong, Poland, Switzerland, Italy, Singapore and Canada. 

One of the great advantages of CFD trading is that they work on the principle of margin. This means that the trader gets a leverage wherein you can make a small deposit and are allowed to trade for sums that are multiples of the amounts. 

Most of the times, a CFD is traded over the counter with the help of a broker or market maker. These are called CFD providers and they help in defining the terms of the contract and the margin rates too. In most cases, the market maker also decides the kind of instrument that is used to trade on.

While a CFD can be compared to the futures and options market in many ways, a CFD does not have an expiry date and therefore there is no chance of price decay.