What is a CFD?

CFD is an acronym for ‘Contract For Difference’. CFDs are a type of derivative. This means that the price of a CFD is derived from the value of the underlying asset. There are many different types of underlying assets that CFDs derive their price from, such as currencies, commodities, indices and shares.

What is CFD commodities

Rather than trading the underlying asset itself, many traders opt to trade with CFDs, which means that they never actually own the underlying asset, but instead speculate or invest in the movements in its price. A CFD is a deal where two parties agree to exchange money based on the change in value (the difference) of the underlying asset between the point at which the deal is opened and when the deal is closed.

If the value of the underlying asset increases, then the buyer makes money. If the value falls, the buyer loses money. Inversely, the seller makes money if the asset falls in value and loses money if it increases in value. CFDs can either be traded ‘Over the Counter’ (OTC) or through an exchange (Exchange Traded CFDs).

ForexCT offers an OTC CFD service, whereby the contract is made between our clients and us as counterparty to those transactions.

OTC CFD service

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