15th Dec 2009 by David Becker
A CFD or contracts for differences is an agreement between two parties to settle, at the close of the contract, the difference between the opening and closing prices of the contract, multiplied by the number of underlying shares specified in the contract. CFDs trade using leverage. Rather than pay the full value of a transaction you only need to pay a percentage when opening the position called Initial Margin. The key point is that margin allows leverage, so that you can access a larger amount of shares than you would be able to if buying or selling the shares themselves.
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