A Contract For Difference (CFD) is a contract between two parties, a seller and a buyer, to transfer the difference between the current value of an asset at the time of conclusion of the contract (opening a position) and its value at the end of the contract (closing the position) [ 1] . Although in form the contract for difference is very similar to the contract for the supply of goods, but the seller is not required to own a real asset, and the buyer does not get the right to demand delivery. If the price of an asset increases between the first and second transactions, the buyer will receive a price difference from the seller [1] . If the price has decreased, the seller will receive a difference in price from the buyer [1] . Typically, the duration of such an agreement is not established [1] and it can be terminated upon the application of only one party to which such right .
In essence, CFDs are a derivative financial instrument for an underlying asset, which allows you to earn income either by increasing or decreasing the price of the underlying commodity or security [1] .
For example, in relation to stocks, CFD is a derivative of the stock purchase agreement, which allows speculating on the movement of stock prices, without the need to register ownership of these shares [1] .
CFDs were created in order to satisfy the requests of small-capital market speculators, since for their purchase / sale it is necessary to deposit only a part of the value of the underlying asset (see margin trading ) [1] . Thus, contracts for difference can significantly expand the scope of private individuals [1] .
The CFD market was formed in the early 1990s in England and initially envisaged operations to conclude contracts for the purchase and sale of blocks of shares , but without ownership of these shares in order to avoid payment of stamp duty. At the moment, contracts for difference are also formed for the purchase and sale of basic commodity and financial instruments, as well as their derivatives.
See also
- Option
- Futures
- Financial betting
- Personal Composite Instrument
Notes
- ↑ 1 2 3 4 5 6 7 8 R. Venkata Subramani. Accounting Contract for Difference // Accounting for Investments, Equities, Futures and Options. - John Wiley & Sons, 2011 .-- S. 419-450. - 832 s. - ISBN 1118179617 , 9781118179611.