What are CFD’s?

I had planned on doing a post on CFD’s in the near future as part of a series on the many products available to traders, however I have moved this forward in response to a comment made on this blog asking to explain what CFD’s are. Brian did give a response but asked me to expand on it for the benefit of all.

The term CFD stands for Contract for Difference, and it is essentially a contract between you and another party (the provider), where by you settle the difference between the purchase price and sale price of the contract. If your sale price happens to be higher than your purchase price you make money, likewise, if your sale price is lower than your purchase price, you will lose money.

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