What are CFDs?

Contracts for difference, or CFDs, are instruments traded between traders and brokers to settle on the difference in the price in an underlying market. They are, as the name implies, contracts for difference in the value in the underlying market between the price today and the price when the position is closed. In many respects, CFDs work functionally the same as a share transaction, or buying any other instrument in cash markets, except for a number of key legal differences and the role of margin and leverage which both come into play when trading CFDs.