Contract For Difference

• Pay difference between current value and a future value
• Advanced strategy
• Don’t need to own underlying Asset
• Doesn’t consider price
  • Only $\Delta$
• Between client and broker
  • Doesn’t use Stock, forex, commodity or futures exchange
• Long/Short
• Advantages
  • Access to underlying at lower cost
  • Ease of execution
  • Can go Long/Short
  • Higher leverage than traditional trading
  • Global market access
• Disadvantages
  • Immediate decrease of initial position
    • Leverage
  • Reduced by size of spread upon entering CFD
  • Weak regulation
  • Potential lack of liquidity
  • Need to maintain margin
  • Risky
  • Higher leverage than traditional trading
    • Higher chance of losses
  • Have to pay the spread
    • Not good for small moves
• Not allowed in the US

Costs

• Commission
  • Usually not for forex and commodities
  • Usually for stocks
• Financing cost
  • Leverage
• Spread
  • $\Delta$ between bid and offer