What are CFDs?

A contract for difference (CFD) is an over-the-counter derivative product comprising a contract to exchange money for the difference of a bought and sold position (vice versa) under which one party is entitled to be paid an amount of money, or to pay an amount of money, based on the price movements of the underlying instrument or security to another party. This transaction concludes with the parties settling the difference between the purchase price and the sale price.

CFDs allow you to take leverage “long” or “short” positions without having to take or make delivery of the underlying instrument or security. Instead, you provide a cash deposit (known as the initial margin) as collateral. Each business day, the position is marked-to-market, with the consequential payments being made between the parties. Although a CFD replicates the price movement of the underlying instrument or security, you have no right or obligation to acquire or deliver the instrument or security itself and do not entitle you to any voting rights.