Derivatives are a form of financial contract which are based on the price movements of an underlying instrument, such as an equity, index or currency, but which do not actually involve buying or selling the instrument itself. Contracts for Difference (CFDs) are an example of a derivative contract.

When you trade a CFD, you are buying or selling a contract for the difference in the opening and closing price of the underlying instrument, but you never actually own the share or index or currency as part of the trade.

However, the pricing of the CFD will reflect movements in the pricing of the underlying assets, and therefore CFD prices are subject to all the same influences on these prices such as the effects of interest rates, inflation and market sentiment.

See “CFDs” for a fuller description of how CFDs work and their pricing.