CFDs: Contract for Difference

An agreement between buyer and seller of an asset saying that the seller will pay the buyer the difference between current value and end of contract time value of the asset, is called a Contract for Difference or CFD. Conversely, if the difference is negative then the buyer pays the seller. Thus, in a CFD, the seller makes money when the asset value decreases while the buyer makes money when the asset value increases, over the contract tenure.

CFDs allow investors to speculate on asset price movements and do trading without actually owning the asset. It is much similar to margin trading such as short selling and short covering. In CFDs the investors can have longer contract durations, which will allow them to take long term positions.

CFDs were first traded in UK where they had the benefit of being exempted from stamp duty. Soon investors realized its potential to trade on leverage on an asset than just obtaining tax exemption. And thus started the growth of CFDs world over! Today they are traded in most of the leading stock exchanges in the world.

Today we have lot of websites that deal with online stock trading, especially for the trading of CFDs, like One Financial. They provide a wide range of trading instruments and also an investor can trade with a large number of exchanges through their site. Being a website they also have the advantage of geographic independence (anyone can trade from anywhere).

Online CFD providers like One Financial make the task of CFD trading a lot easier for investors. They are one of the few sites where investors can open a demo CFD account to get themselves acquainted with the interface and processes involved in CFD trading. For all those newcomers in the field of CFD trading, they have a CFD for beginners section in their website.

CFDs are indeed an interesting investment opportunity for investors!