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contract for differences


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(CFD)

A derivative contract in which one party (the issuer) agrees to pay another (the buyer) the difference between the current value of an underlying (e.g. an equity, bond, or index) and the value at the time the contract was made: if the difference is negative, the buyer pays the issuer. Settlement is on a daily basis for as long as the contract remains open. CFDs enable investors to speculate on the price movements of an asset without buying it: the buyer pays only a small principal to the issuer but receives the full benefits of owning the asset (including dividends on shares) and is likewise fully responsible for any losses. Exchange-traded CFDs went on sale for the first time in August 2007, on the Australian Stock Exchange.

Subjects: Financial Institutions and Services.


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