CFD
Contracts For Difference – CFD
This is an agreement concluded between two parties for the difference of the rate change of a particular financial instrument under the contract.
Nowadays this kind of contract is widely used in various shares, futures, stock indexes and other derivatives trading.
A characteristic feature of such a contract is that no real goods delivery occurs, unlike in the futures market, which results in an essential decrease of such transaction expenses. Moreover, there is always a possibility to carry out a transaction with regard to a financial instrument in a full volume, which is not always possible during trade in either stock exchanges or other organized markets.
Such kind of contracts are widely used due to the possibility to hedge one’s own positions in the stock exchange saving shares in case of their fall in the stock exchange, however, compensating this fall by concluding a sell contract of these shares through intermediary of a broker by means of CFD.
As CDF is a marginal product, CDF trades can be carried out with a relatively small deposit. Due to provided leverage the effectiveness of such contracts can exceed their analogues. If in the stock market you can buy 100 Microsoft shares with $2500 transaction expenses, by means of CDF trade with the use of leverage your transaction expenses will make up $250 while you can gain return on capital employed 10 times as much.
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