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Contract for difference

In finance, a contract for difference (CFD) is a contract between two parties, typically described as ""buyer"" and ""seller"", stipulating that the seller will pay to the buyer the difference between the current value of an asset and its value at contract time (If the difference is negative, then the buyer pays instead to the seller). In effect CFDs are financial derivatives that allow traders to take advantage of prices moving up (long positions) or prices moving down (short positions) on underlying financial instruments and are often used to speculate on those markets.For example, when applied to equities, such a contract is an equity derivative that allows traders to speculate on share price movements, without the need for ownership of the underlying shares.CFDs are currently available in Australia, Austria, Canada, Cyprus, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, The Netherlands, Luxembourg, Norway, Poland, Portugal, Romania, Russia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, United Kingdom and New Zealand. They are not permitted in a number of other countries. In the United States, under the Dodd-Frank Act, CFDs are considered to be “swaps” or “security-based swaps,” depending on the nature of the underlier on which they are based, and are subject to the regulatory framework for those products established by Title VII of the Dodd-Frank Act. For example, a CFD on Apple common stock would be a security-based swap (SBS) subject to the regulatory framework for SBS established by the Dodd-Frank Act. Under the Dodd-Frank Act, among other things, transactions in SBS with or for retail investors (that is, persons who are not “eligible contract participants”) must be done on a registered national securities exchange and offers and sales of SBS to retail investors must be registered under the Securities Act of 1933.
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