Don't let volatile markets frighten you off Isas
22 Feb 2012
A Contract for Difference (CFD) is an agreement between a buyer and seller to exchange the difference in the current value of a share, currency, commodity or index and its value at the end of the contract.
It is a derivative product which allows investors to have speculate on the price movements without having to own the underlying asset.
Those who own a share CFD will receive the same benefits, like dividends, that shareholders receive, while paying less in buying/selling fees by not only actually owning the shares themselves.
This offers the potential for very high short term gains if you judge the price movements of certain assets or markets correctly.
However, CFDs are also deemed a very high-risk investment and should only be considered if you are a proactive, confident and experienced investor. In the worst case scenario, it is possible to make a loss far in excess of your original investment.
