Features of CFDs


CFDs are neither futures contracts nor conventional spot products. They are innovative and advanced financial instruments based on the spot market and absorbing the advantages of futures contracts.


CFDs use the spot market price as the contract price. When the holder wants to deliver, it is delivered at the spot market price at that time. Therefore, CFDs are bought and sold based on the spot market price fluctuations. The profit and loss of the contract holder is also determined by the spot market price. Therefore, it is a financial instrument based on the spot market.


CFDs are a contract with a fixed contract size, trading unit, and quoted currency, as well as futures contracts; CFDs can be used for commodities, stock index futures, stocks, bonds, and futures contracts, and are also widely used; CFDs are leveraged transactions. Brokers (banks or investment banks) that provide CFDs generally allow investors (traders) to trade on margin, which is what we often call "leveraged trading". Paying a portion of the margin can trade contracts of several times the value. CFDs are designed and provided by brokers, and futures contracts are also margin transactions. The contracts are designed and provided by futures exchanges.


Therefore, in summary, futures contracts and CFDs are indeed very similar. However, there are indeed differences between the two. First, CFDs are not traded in a fixed exchange. It is a non-centralized over-the-counter market (OTC), while futures contracts are traded in a futures exchange. Secondly, CFDs are non-deliverable contracts, that is, the commodities (physical products or financial products) in the contract will not be physically delivered, and only cash settlement of the price difference will be made during settlement. Therefore, CFDs are theoretically unlimited, that is, investors (traders) can hold the contract forever, while futures contracts have an expiration date, and physical delivery must be made upon expiration.


Therefore, CFDs are an innovative and advanced financial instrument that draws on the advantages of futures contracts.