Contracts for Difference (CFD) as an important form of financial derivatives have attracted increasing attention from investors in recent years. However, many people still have only a partial understanding of this trading method. This article will comprehensively analyze CFDs from multiple dimensions, including trading principles, operational mechanisms, differences from other tools, and risk management.
What is a CFD?
A Contract for Difference (CFD) is a margin trading form that falls under the category of financial derivatives. Essentially, a CFD is an agreement between two parties based on the price movement of an asset.
Specifically, the two parties agree to use the current price (opening price) as the benchmark. At the contract's expiration or when closing the position, settlement is made based on the difference between the settlement price and the opening price. If the settlement price is higher than the opening price, the long position holder profits; otherwise, they incur a loss. The entire process