CFD contract

CFDs are derivatives and leveraged instruments with infinite maturity, CFD is a abbreviation of Contract For Difference. An exercise date does not exist for these instruments.

A CFD is a derivative since this contract derive its value from an underlying financial instrument. Underlying instruments of CFD's include equities, equity indices, bonds, currencies and commodities. CFDs are very similar to futures, the value of a future like a CFD is affected by the change in value of the underlying asset and the two instruments contain a interest component.

CFDs are leveraged instruments, you only need to deposit a proportion of your total position. This deposit can be between 1 % to 10 % of the total position at CMC Markets, depending on the underlying instruments involved. This means that you can take a position of, for example, 100 000 by only deposit 10 000, this means that you get a high leverage relative to the amount deposited.

CFDs are entirely synthetic, there is never a delivery of the underlying securities.

If you buy a CFD on shares you have to pay interest because you in reality borrows money (eg LIBOR + 3 %) during the time the position is held. If you are going short in a CFD position you will receive interest because you in reality lends money during the time the position is held.

The risk in CFD's are high and you can lose more money than you have deposited because you take positions that are several times larger than your deposit and there is also a financing cost.

Buying CFDs on shares is like borrowing money to buy shares.
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cfd contract, contract for difference, financial instruments