MF Global

A Contract for Difference, also commonly known as a CFD, is defined as an agreement between two parties to exchange the difference between the opening value and the closing value of a contract, with reference to the underlying security or financial instrument. CFDs are traded over the counter (OTC), where one of the two parties is typically a broker.

Simply put, a CFD is an equity derivative that allows investors to get exposure to share price movements, without the need for ownership of the underlying shares. CFDs efficiently allow investors to take long or short positions, where the investor provides a cash deposit (known as margin) as collateral rather than the payment of the full value of the underlying position. Trades are conducted on a margined basis, which means the investor does not pay the full purchase price of the share. Unlike other equity derivatives; CFDs do not have an expiry date, so as long as the investor’s account can support any variation in margin and interest incurred, a CFD position can be held indefinitely.

CFDs are currently available on listed markets in Australia, United Kingdom, USA, Japan, Hong Kong and Singapore. CFDs provide an alternative approach to trading the share market. CFDs can potentially offer opportunities for trading when there are short to medium term price rises (or falls), or to hedge against adverse movements in the market place.