Get access

Contracts for dummies? The performance of investors in contracts for difference


  • Adrian Lee thanks an anonymous referee, Kingsley Fong, Doug Foster, Michael Graham, Susanne Griebsch, Janice How, Daniel Smith and conference participants at the 3rd Conference on Financial Markets and Corporate Governance in Melbourne, Australia and the 2012 World Finance Conference in Rio de Janeiro, Brazil for helpful comments and suggestions. We thank Zhe Chen for research assistance.


Investors widely use contracts for difference (CFDs) to leverage and short sell underlying financial assets. We investigate the after cost performance of investors in Australian Securities Exchange listed share CFDs, and find that market order CFD trades earn small positive returns at the daily horizon, with negative returns reported for one month to one year horizons due to financing costs. Market orders also net sell positions, which suggests that investors use CFDs for shorting opportunities. Overall, we find that liquidity demanders in CFDs obtain favourable execution, which is inconsistent with the view that CFDs are used by naive individuals.