Cfd stocks
Family I · Instruments
Not to be confused with cfd, cfd trading, cfd analysis.
CFD stocks are contracts for difference whose underlying reference asset is a listed company's shares. The position is settled in cash against the change in the reference share price, and the underlying shares are never delivered. Because the contract is a derivative, the holder has no shareholder rights such as voting or dividends, though a dividend adjustment is commonly credited or debited to the account.
How a CFD stock position works
A CFD stock position is opened at one price and closed at another; the difference is credited or debited in cash. Two features distinguish it from buying the share itself:
- Leverage or margin: only a fraction of the notional value is required as margin, so both gains and losses are magnified relative to the deposit. The required percentage varies by broker, instrument and jurisdiction.
- Financing and adjustments: holding a long position overnight typically incurs a financing charge based on the notional value; short positions may receive or pay a rate. Dividend adjustments are applied so that the economic effect of the dividend is reflected without share ownership.
Commissions, spreads and financing terms differ between providers and are set out in each provider's documentation.
Worked example
Financing, commission and any dividend adjustment are applied separately and reduce or increase the final result. A fall in the reference price produces a loss of the same magnitude per point, and losses can exceed the margin deposited.
Where CFD stocks differ from share ownership
Buying the underlying share transfers legal ownership and the associated rights. A CFD stock contract transfers only price exposure. This affects tax treatment, which varies by country and by the residence of the holder, and it affects what happens in corporate actions: share splits, rights issues and mergers are usually reflected by adjusting the contract terms rather than by delivering new securities. Availability of individual CFD stocks also varies by provider and by market.
Often confused with
- cfd
- A CFD is the general contract type, while CFD stocks are the subset whose underlying is a company share; the visible sign is the underlying asset named in the contract.
- cfd trading
- CFD trading is the activity of buying and selling CFDs, whereas CFD stocks are the instruments themselves; the visible sign is whether the term describes an action or an asset class.
- cfd analysis
- CFD analysis is the study of price behaviour and market conditions, not a tradable instrument; the visible sign is that it produces commentary or charts rather than a position.