A CFD or Contract For Difference is a contract whose value varies depending on the volatility of the price of an underlying product. The underlying product may be a share, a stock index or a futures contract.
For example, the CFD of a share is an underlying agreement / contract between two parties who agree, at the expiry of the agreement, to exchange the difference between the opening price and closing price of the contract (which depends on the price of underlying share) multiplied by the number of shares specified in the agreement.
As the price of the CFD is based on the price of another financial instrument, the CFD is categorised as a derivative product. So, without having legal ownership of a stock, an index or a commodity future, the investor can take advantage of any changes in the prices of those instruments. Furthermore, trading in CFDs is executed in Over the Counter markets ( OTC).
Another key feature of a CFD is that it has a built in Margin Utilisation mechanism. This implicates the use of leverage, which can lead to both higher profits and greater losses. The Margin Requirement required for opening a CFD position depends on the underlying financial product.
CFDs can be broadly categorized into 3 main groups as followes:
CFDs for stocks trading in the Greek Stock Exchange and in many other international stock exchanges.
CFDs on indices, such as the DAX CFD, the S & P CFD, the NASDAQ 100 CFD, the Nikkei 225 CFD and many others.
CFDs on Commodity Futures, such as gold and oil futures.