Underlying Asset

The underlying asset is the market whose price a derivative is built on. When you trade a CFD on an index, a metal, or a share, you never own that underlying instrument; the contract simply tracks its price, and your profit or loss comes from the difference between your entry and exit levels. Knowing what the underlying actually is matters because it determines the behaviour of the contract. A commodity CFD may track a futures contract with an expiry rather than a physical spot price, and an index CFD reflects a basket of shares that pay dividends. Trading hours, gaps, financing charges and corporate-action adjustments all flow from the characteristics of the underlying market.