CFD trading

What is it

Trading shares without physically owning them

As the name suggests, CFD involves trading the difference in the price of an asset at two different points, rather than holding the asset itself.

A CFD is essentially an agreement between an investor and provider to exchange the difference between the nominal value of the opening and the closing trades.

Contracts for Difference example

Let’s say that you and I agree a contract for difference for Vodafone. You think Vodafone will go up from its current price of 150p and I take the other side of this deal. Three weeks later, it has risen to 160p. You decide to end the contract and I pay you the difference between 160p and 150p - 10p. Had it fallen from 150p to 140p and you ended the contract, you’d have paid me the difference.


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