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Contract for Difference (CFD) – Theory Questions

Theory Questions

1. Define a CFD contract and explain how it is different from a futures contract.

2. What are the salient product features of CFD?

3. Is short-selling possible with CFDs, and if so are there any advantages?

4. How is the funding cost computed for a CFD contract?

5. What are the margin requirements for a CFD contract?

6. Discuss briefly the advantages and disadvantages of a CFD contract.

7. “CFD is highly risky.” Do you agree? Give reasons for your answer.

8. How is a CFD contract terminated?

9. Explain the trade life cycle for a CFD contract and what journal entries are passed for each event in the cycle.

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