CFD means Contract for Difference. It means you basically entering into a contract with your broker such that you predict if the price of something will rise or fall and if you are correct you are compensated with the price difference between when you entered the contract and when you are exiting the contract.
If the price of a currency pair like EUR/USD is 1.1650 and you predict it will fall, you can also enter a CFD contract for 10,000 units. If you are correct and EUR/USD price falls to 1.1625 your profit will be (1.1650 - 1.1625) x 10,000 = $25
Why is CFD popular?
1. The popularity of CFD trading is likely because you do not need to own the asset being speculated on in the contract, all you do is predict and win/lose.
2. Another reason for the rise in the popularity of CFDs is their flexibility. Today brokers can setup CFDs for virtually any asset. Today we see brokers offering CFDs on Forex Pairs, CFDs on Stocks, CFDs on Options, CFDs on Futures, CFDs on Crypto, CFDs on Commodities, CFDs on ETFS, CFDs on Indices, etc.
3. CFDs are also popular because they are cheap to enter into as brokers can design CFDs for very small quantities of an instrument. Brokers also provide support in form of leverage so that even if you don't have enough money, you can still enter the contract and repay if your predication is correct. However, if your prediction is wrong, any losses you sustain will be deducted from your account balance.
