Description
A contract for difference (CFD) is an agreement between a ‘buyer’ and a ‘seller’ to exchange the difference between the current price of an underlying asset (shares, currencies, commodities, indices, etc.) and its price when the contract is closed. CFDs are leveraged products, and they offer exposure to the markets while requiring only to put down a small margin (‘deposit’) of the total value of the trade.
Instrument category
Risk mitigation instruments
Implementation status
Moderate - tried and tested
Enabling conditions and success factors
- Carbon CFDs require analysis on whether they should be enacted at the national or regional (EU) level.
- More suitable for innovative projects.
Instrument benefits
- CFDs provide higher leverage than traditional trading.
- Investors can trade CFDs on a wide range of worldwide markets.
Challenges and risks to implementation
- The CFD industry is not highly regulated, implying significant risks.
