Contracts for difference (CFD)
A Contract for difference (CFD) is an agreement between a ‘buyer’ and a ‘seller’ to exchange the difference between the cur-rent price of an underlying asset (shares, currencies, commodities, indices, etc.) and its price when the contract is closed.
CFDs are leveraged products. They offer exposure to the markets while requiring you to only put down a small margin (‘deposit’) of the total value of the trade. They allow investors to take advantage of prices moving up (by taking ‘long positions’) or prices moving down (by taking ‘short positions’) on underlying assets.
When the contract is closed you will receive or pay the difference between the closing value and the opening value of the CFD and/or the underlying asset(s). If the difference is positive, the CFD provider pays you. If the difference is negative, you must pay the CFD provider.
CFDs might seem similar to mainstream investments such as shares, but they are very different as you never actually buy or own the asset underlying
Key message Last updated: Sep 07, 2016
CFDs are complex products and are not suitable for all investors.
Don’t use money you can’t afford to lose. You could lose much more than your initial payment.
You should only consider trading in CFDs if:
• you have extensive experience of trading in volatile markets,
• you fully understand how they operate, including all the risks and costs involved,
• you are aware that the greater the leverage, the greater the risk,
• you understand that your position can be closed whether or not you agree
with the provider’s decision to close your position,
• you have sufficient time to manage your investment on an active basis.
Curious about CFDs and their risks? Click to download a fact-sheet published by ESMA and EBA. Ghal verzjoni bil-malti ikklikja hawn.
The information provided above has been prepared by the European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA). ESMA is an independent authority of the European Union and its members are the national regulators responsible for securities and investment services business. The EBA is also an independent authority of the European Union and its members are the national regulators responsible for banking business. The MFSA is an active member of ESMA and EBA. More information about ESMA is provided here: www.esma.europa.eu. The EBA's website is www.eba.europa.eu.