Etf cfd
Family I · Instruments
Not to be confused with cfd, cfd trading, cfd analysis.
ETF CFD is a derivative contract between a buyer and a seller that settles in cash on the difference between the opening and closing price of an exchange-traded fund. The position is margined and marked to market, and the holder does not acquire units of the ETF or any shareholder rights in it. Because the reference instrument is a fund, the contract tracks a basket of underlying securities rather than a single share.
Structure and mechanics
An ETF CFD references the quoted price of an ETF, which itself holds a portfolio tracking an index, sector, commodity or bond market. The contract does not convey ownership of fund units, so there is no entitlement to dividends distributed by the fund, though a dividend adjustment is commonly credited or debited to the account. Positions are financed: long positions typically incur a daily financing charge and short positions may receive or pay one, depending on prevailing rates and the broker's terms.
Margin requirements, financing rates, trading hours and dividend-adjustment rules vary by broker, by jurisdiction and by the specific ETF referenced. Some regulators restrict the marketing of CFDs to retail clients, and leverage caps differ between countries.
Worked example
Financing and any commission are deducted separately and are not included in the figure above.
Uses and risks
ETF CFDs are used to take directional views on a fund's price, to hedge an existing ETF holding without selling it, or to gain short exposure where short selling the fund itself is impractical. Leverage magnifies both gains and losses relative to the margin deposited, and a move against the position can trigger a margin call or automatic close-out. The financing charge accrues daily, so a position held over time must outperform that cost to break even.
Often confused with
- cfd
- A CFD is the general contract type that can reference any underlying asset, whereas an ETF CFD specifically references an exchange-traded fund; the visible sign is the named underlying in the contract specification.
- cfd trading
- CFD trading is the activity of buying and selling such contracts, while an ETF CFD is the instrument itself; the visible sign is whether the text describes a product or a practice.
- cfd analysis
- CFD analysis is the study of price behaviour and risk on these contracts, not the contract; the visible sign is whether the subject is a method of examination or a tradable instrument.