Trade in CFD (Contracts For Difference) is a contractual agreement for the difference between the opening price and the closing price of a position for various financial tools. CFD is an efficient and convenient speculative mechanism for trading in stocks, indexes, futures and commodities.
The distinctive characteristic of a CFD is that the instrument in the contract is not actually delivered. In other words, instead of buying, say, 200 shares of IBM on a stock exchange, you may buy a contract for the difference (CFD) of 200 shares of IBM. The convenience is that at any point in time you have the possibility of making the deal in its full volume for the proposed financial instrument, which is sometimes rather difficult when trading with real stock exchange contracts.
Such contracts are becoming increasingly popular throughout the world trade practice, as they help making speculative profits and to hedge investment portfolios when it starts losing money. The latter happens when an investor is losing on shares of some company but does not want to sell, in which case he an excellent opportunity to hedge the risks through a contract for the difference of the shares of the same issuer, thus, stopping further losses and leaving the portfolio unchanged.
CFD is a marginal product, i.e. all deals for such contracts are made under the same scheme as with currencies at the Forex market with a certain leverage.