Glossary Term

CFD (Contract for Difference)

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CFDs or contracts for difference are derivatives that allow speculators to trade assets without actually having to take possession of them. This holds true whether they are buying (going long), or when selling (going short). Say you’re trading a CFD on EUR/USD and are long, when you close the position if the exchange rate for EUR/USD is higher than the price at which you bought, the seller (in this case your broker), pays you the difference. If the exchange rate is lower than the price at which you bought, then you owe your broker the difference. CFDs can be traded on almost any underlying asset, from FX and stocks to commodities, indices, and even cryptocurrencies.

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