A contract for difference, or CFD, is a popular financial contract used for speculating on asset prices. In a CFD, a contract is made between the buyer (client) and the seller (broker). This contract determines that the buyer will pay or receive the difference between the current and future values of the underlying asset when the CFD is sold.

With CFDs, clients can speculate on asset prices without actually purchasing or owning the asset. Due to the numerous benefits they offer, CFDs have gained significant popularity over the past decade.

CFDs are a well-favored method of derivative trading and allow the trader to speculate on the rising or falling prices of fast-moving global financial markets (or instruments) such as stocks, indices, equities, and foreign exchange. One of the key benefits of this form of trading is that the trader can trade on margin and can sell if they suspect that prices will go down or buy if they expect that prices will rise. There are fewer regulations and requirements within the CFD market compared to other standard exchanges.

This means that there are lesser capital requirements involved for a brokerage account and a trader can often open a CFD trading account with as little as $100 and trade values up to 10 times this amount by using leverage.

One of the biggest advantages of the CFD market for traders is that it easily allows the trader to take a long or short position. As the underlying asset or instrument is not physically settled, there are no restrictions on short selling, and no borrowing or shorting costs are incurred. Brokerage fees are often nil or extremely low as the brokers will earn their money through the spread.