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Contract for Difference (CFD)
A contract for difference (CFD) outlines a buyer’s obligation to pay any price difference that might occur due to the shifting valuation of an asset.
What Is a Contract for Difference (CFD)?
A contract for difference (CFD) is an important financial instrument that allows investors to protect themselves from serious fluctuations in the valuation of assets they are selling. In our modern economy, the prices of assets are quite volatile. In order to protect sellers from losing money during the documental preparations for a sale, buyers and sellers usually sign a contract for difference.
A CFD essentially ensures that the seller will receive payment for the value of the asset at the time of the agreement, even if the actual sale happens months after that because of documentary and administrative procedures. While all relevant documents are prepared, the price of this asset might decrease, thus robbing the seller of the initial gain they were expecting. Certificate for difference prevents sellers in such a scenario.
When signing a CFD, the buyer agrees to pay a set price for the asset regardless of any future fluctuations. In essence, the buyer agrees that they will cover any price difference between the amount agreed in the CFD and the actual price of the asset at the time of the sale.
CFD in the Crypto Space