What is CFD Trading? A Complete Guide to Contracts for Difference

'CFD' stands for 'contract for difference' and consists of an agreement (contract) to exchange the difference in the value of a currency, commodity, share or index between the time at which a contract is opened and the time at which it is closed. If the asset rises or falls in price, the buyer receives or earns cash from the seller.

CFD pricing is based on the movements of the underlying asset.

As a very simple example: if you buy a ‘contract for difference’ at $14 and sell at $16 then you will receive the $2 difference. If you buy a CFD at $10 and sell at $8 then you pay the $2 difference.

Basically, a CFD contract means that you are not physically exchanging currencies, nor purchasing any assets, but you are simply making profit or loss based on your speculation of the price movement.