Contract for Difference

A contract for difference (CFD) is a contract between two parties in which one pays to the other a sum of money based on the difference between the current value of a security or instrument and its value on a specified future date. If the difference is the opposite of that specified in the contract i.e. it is negative not positive, payment is made in the opposite direction. For example, Party A takes out a contract with a Party B that a share price will rise by a certain amount by a certain date. If the price is reached or exceeded then Party B pays Party A. If the price falls Party A pays Party B. CFDs allow investors to take long or short positions without having ownership of the security. CFDs can be traded on indices, natural phenomena, such as the weather, or anything that is measurable.