CFDs are a unique financial instrument that stands for ‘Contract for Difference’ where settlement differences in futures contracts between counter-parties are made through cash rather than physical delivery of an asset. CFDs are provided by online brokers and enable investors to exchange the difference in a contract of a specific asset’s price movement within the entry and exit of the contract — without owning the underlying asset.
CFDs were originally only traded by banks and other financial institutions as a form of equity swaps used to speculate on markets and hedge risk. However, CFDs have been increasing in popularity among countries across the world, but notably, they are not available in the U.S.
Established rules on OTC products in the U.S. require CFDs to be traded by retail investors on regulated exchanges, but there are no regulated exchanges for retail investors that support CFD trading in the country.
The market for CFDs is not highly regulated, although CFDs have come under increasing regulation in Europe…