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What are CFDs?

CFDs are basically another form of financial derivative. When you think of derivatives you basically think of the futures, options, swaps, warrants, convertibles etc. The attractions of derivatives from an investor or traders point of view are:

- Large profits (but also losses) can be made on a small capital outlay as derivatives can offer great leverage.

- Derivatives allow an investor to take positions on upward and downward movements in the underlying instrument which the derivative is based on.

- Derivatives can also be used to hedge (manage risk) of an investment in the underlying instrument. 

The explosion of CFDs popularity is probably due to it being highly accessible to any investor/trader/speculator compared to well known derivatives that have been in existence longer. 

In summary, CFDs have essentially the same characteristic as other more well known derivatives. Contract For Difference (CFD) is a contract between a buyer (/seller) and a seller (/buyer) to pay the difference between the buy (/sell) and sell (/buy) price based on an underlying instrument when the contract is settled.