Trading in contracts for difference (CFD) is a type of trading in the price differences of a certain asset between the open and closing trades. In essence, in this type of trading the investment is made solely on difference in price without holding the property itself, and the profit or loss resulting from the investment is determined only by that difference. This is not a new financial instrument, although its massive entry into the markets has accelerated greatly in recent years. This product was already available at the end of the 1990s, but then it was only used by experts – large portfolio managers, hedge fund managers and nostro managers (funds managed by banks, investment firms, etc.). CFD was used by these experts to hedge the portfolio against risks, as a pure investment and as an instrument that overcomes discontinuity in the markets.
CFDs are tradable around the clock, unlike stocks and securities. These contracts are traded on designated CFD and option exchanges, as well as on some of the largest and most well-known exchanges in the world. In the USA there are dedicated derivative and option exchanges, including the Chicago Stock Exchange, and the London Stock Exchange is very prominent in the field of CFDs.
In 2016, a revolution took place in the world of online trading arenas. These arenas, which operated without regulation, have now received the broad supervision of the Securities Authority. Since the field has become supervised and controlled, it has also become more reliable and convenient for investors. The websites that operate trading arenas – forex arenas, CFD arenas, ETFs, commodities and more – are required to comply with regulations and have become transparent and controlled. These arenas are an internet platform of companies that provide online trading systems, which expose investors and traders to a wide variety of investment avenues, including, as mentioned, a variety of options in the forex and futures markets, contract differences/CFDs, commodities and more. These arenas provide not only a wide variety of options, but also smart communication systems with much financial data, many analysis options, trading, monitoring and real-time risk management and more.
Engaging in the trading arena requires skill, knowledge and understanding of the risks. It is not suitable for every person: leveraged activity involves a real risk of losing the full investment in a short time; a company operating such an arena acts as the counterparty in transactions with the investor, therefore it is the seller when the investor buys, and is the buyer when the investor sells. In light of this, the very act of engaging in this activity in Israel and abroad is accompanied by regulatory aspects and requires ongoing legal support.