Contract for Difference (CFD)

A contract for difference (CFD) is an over-the-counter agreement between two counterparties - a buyer and a seller - to exchange payments based on the change in price of an underlying instrument. Essentially the seller will pay to the buyer the difference between the current value of an asset and its value at contract time (if the difference is negative, the buyer pays instead of the seller). CFDs are derivatives that allow traders to take advantage of prices moving up (long positions) or down (short positions), used to speculate on the market they are trading in.