The term CFD is used for “contract for difference”. CFD is a derivative product which is traded over-the-counter and is used by professional traders to make a quick profit by speculating on the price movement of the financial products such as Stocks, Commodities, Indices and Currencies. CFD’s can also be used to hedge an existing physical portfolio.
Unlike Spot forex - CFD is a non-deliverable product, its agreement is made in the futures contract and settlement is made via a payment between the two parties. You can also trade CFD’s on margin/leverage funding that can also boost returns on your initial deposit but there is also a high risk of losing all of your investment in a very short period and in some cases losses can also exceed your initial deposit.
CFD can also be to trade in both directions i.e: Buying (going long) and Selling (going short). While trading in CFD’s, you are not buying/selling the underlying asset. These underlying asset can be either stocks, indices or commodities.
As mentioned above, CFD’s are margin/leveraged product, this means that a position can be opened by only depositing a small percentage of the total contract value. The margin percentage can be as low as 2% which can also go up to 20%, depending on the market conditions.