A contract for difference (CFD) is an arrangement made in a futures contract whereby differences in settlement are made through cash payments, rather than by the delivery of physical goods or securities. This is generally an easier method of settlement, because both losses and gains are paid in cash. CFDs provide investors with all the benefits and risks of owning a security without the hassle of actually owning it.

Put simply, CFD trading lets traders speculate on the price movement of various instruments in the financial markets be they currencies, commodities, shares, or indices, regardless of whether prices are rising or falling. The trader can trade on falling markets (going short) as well as rising markets (going long) and use a small amount of money to control a much larger value position.