CFD central securities

CFD's

CFD is the abbreviated term for a Contract For Difference. A CFD is a contract between two parties to exchange the difference between the entry and exit price of a financial instrument.

Because CFD's are derivatives, one never owns the physical share, instead either making a profit (or a loss) on the underlying share price movement as the CFD mirrors the price of the underlying security. As a result of never actually owning the security, you are not entitled to any voting rights, but you do receive 100% of the dividend paid.

As well as buying a CFD (going long) with the view that it may rise, you can also sell a CFD (going short) that you do not own, with the view that it may fall.

CFD’s are as simple as shares are to trade. They trade at the same price so calculating profits and losses is identical to shares. The major difference is that you buy a CFD with borrowed money. Providers let you leverage on a CFD trade so they are traded on margin. Generally 10 to 20% of the securities value is required and the remainder can be borrowed.