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What are CFDs?

CFD, or Contract for Difference, is a contract or agreement between a provider and an investor that works on the opening and closing price of shares. The main idea of CFD trading is to make profits from changes in the price of stocks and shares. It is a way of trading on the price movements of financial markets all over the globe, without actually engaging in direct buying or selling of the underlying asset. 

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.