A CFD instrument is a contract between a trader and a broker to exchange the difference in the value of a particular underlying instrument for the period between when the contract is opened and when it is closed.
CFDs are leveraged financial derivative that enables the buy of the contract maximal exposure to price fluctuations of the underlying instrument without having to pay the full price of that instrument. CFDs, therefore, offer the potential to gain a higher returns from a smaller initial cash deposit than investing directly in the underlying instrument. As a result of this leverage, a daily interest payment is made by the buyer to the seller on a daily basis. The full exposure amount is loaned to the buyer of a long position and the interest is paid to the seller of the position on a daily basis.
Most financial experts agree that CFDs are an efficient means of trading shares, indices, commodities, and currencies.
The following is an example of a CFD trade on FTSE100
Account currency: EUR
Open price: 7513.51
Close price: 7513.61
Contract size: 100 CFD
Pip value: 11.56 EUR
Swap short: -48.27 EUR
Swap long: -72.41 EUR
Margin at current market price: 1737.73 EUR
Commission: 0.00 EUR
Profit: 11.56 EUR
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