What is a CFD?

What is a CFD?

The term CFD stands for Contract For Difference. This is a contract to exchange the difference in value of a financial instrument (the underlying market) between the time at which the contract is opened and the time it is closed.

Definition: what is a CFD?

What this means is that you select the market you want to trade but rather than making the full physical purchase (or sale) you open a CFD with us instead. This contract will replicate the profit and loss of your intended purchase (or sale).

CFDs are fast growing in popularity as a flexible alternative to traditional share trading, giving you a greater degree of leverage on your investment capital.

How a CFD works

Say you want to buy 1000 shares in BP. You could buy these shares through a stockbroker, paying the full value of these shares (1000 x the current market offer price of BP) plus a commission to the stockbroker.

Alternatively, with InterTrader.com you could buy 1000 CFDs in BP (at our quoted price). To open this contract you would have to supply a margin deposit to cover any potential downside.

Selling shares through a CFD provider is easy. You just open your contract to go short rather than long, at our bid price. For this reason CFDs are often used by clients who want to hedge an existing investment portfolio.

Although originally devised for equity trading, CFDs are also used to trade the major indices, FX and energy contracts. Our CFD service covers a wide range of market types matching the scope of our spread betting service. As with our equity markets, the charge for all our non-equity contracts is built into the dealing spread.

A CFD is a flexible investment vehicle. For contracts that don't have an expiry, you decide exactly when you want to close your position and realise your profit or loss.

Next steps

For a more detailed understanding of the mechanics of a CFD trade see our CFD Examples and CFDs in Detail.

If you are new to CFD trading, we recommend that prior to applying for a Live Trading Account you open an online Demo Account and follow our online User Manual.