The full form of CFD in banking, referring to a financial derivative, is Contract for Difference.
Understanding Contracts for Difference (CFDs)
A Contract for Difference (CFD) is an arrangement used in financial derivatives trading. It's a method where the difference in settlement between the open and closing trade prices is settled in cash. Key aspects of CFDs include:
- Cash Settlement: Transactions are settled in cash, meaning there is no physical exchange of goods or securities.
- Derivative Trading: CFDs are derivative products, meaning their value is derived from an underlying asset (e.g., stocks, commodities, currencies).
- No Physical Delivery: Unlike traditional trading, CFDs do not involve the delivery of physical assets.
CFDs offer opportunities for traders to speculate on price movements without owning the underlying asset.
