CFDs allow you to speculate on whether the price of an asset will rise or fall without having to purchase the stock. In most cases, you do not, but you do own the underlying asset. You would purchase Microsoft stock through an internet brokerage. Rather, you can speculate directly upon that stock price moving up or down throughout a CFD trade. In this situation, you do not own all the underlying assets; rather, you agree with the counterparty. Overall, trading CFDs is similar to using knives: they can be incredibly useful, but if you don't know when to use them, you can cut yourself. As the name implies, a contract for difference (CFD) is one in which the buyer agrees to compensate the seller for either difference, including the current value of both assets. This results in the price at the time the contract is performed.