Contract for differences

(CFD).

An arrangement whereby the difference in price between two underlying securities or financial instruments (one of which could be cash) is settled in the future in cash, rather than by the delivery of the securities or instruments.

Effectively the CFD is a spread bet on the outturn market price or rate.

A CFD provides an investor with the benefits and risks of ownership of a security (or other market position) without actually owning it.

Examples include Forward Rate Agreements (FRAs), Non-Deliverable Forwards (NDFs) and swaps.

Also known as a Contract for Difference.

See also

• Equity swap
• Forward rate agreement
• Non-deliverable forward
• Spread bet
• Swap