What is CFD?

Contracts for Difference are contracts between the invester and the provider of the difference contract for payment of the difference between the opening and closing prices of the underlying contract as profit or loss.

Within this contract, initial margin needed by investors to trade for contracts for difference is determined by the intermediary institution. Again in these trades, bid and ask prices are quoted by the intermediary institution, and investor tries to obtain a return on investment by buying or selling the related contract. Similarly to FX transactions, CFD transactions also allow the investor to trade at a size of positions above its margin at a leverage ratio determined by the intermediary institution.

Contracts for Difference are divided into two groups, namely Forward CFD and Cash CFD. Forward CFDs are based on share certificates indices, FX and forward contracts traded in foreign organized exchanges and are therefore quoted with periodic maturities (3 months in general). Cash CFDs are based on spot prices of related assets and are quoted without maturity. Cash CFDs are products containing an overnight holding cost (swap). Forward CFDs are open for trading only in certain hours of days as they are based on standard contracts traded between certain hours in organized market, while Cash CFDs can be traded continuously for 24 hours a day as they are based on spot products.

Forward CFD Cash CFD
Are based on forward contracts traded
Take into account the spot prices of such assets as share
certificates, commodities and indices
Are generally quoted at 3-monthly
No maturity
No swap cost or income as they are
based on a forward contract
Have overnight holding costs for long and short positions
Are subject to certain trading hours May be traded 24 hours a day
Do not have any reflections on investor Except for such rights as voting right, the effects of dividends and capital increases are reflected onto investor

In Turkey, CFD trades are regulated in CMB under the heading of “Types of Trading of Over-the-counter Derivatives and Underlying Assets of Trades” in 2nd and 3rd subparagraphs of article 25/A of the “Communiqué (III-37.1.a) Amending the Communiqué III-37.1 on Principles Relating to Investment Services and Activities and Secondary Services”.

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