Which of the following best describes a CFD?

A contract for difference (CFD) is indeed correctly described as involving an agreement where the seller pays the buyer the difference in the value of an asset between two points in time. In this arrangement, leverage is often used, allowing traders to speculate on the price movement of various financial assets without actually owning them. The trader profits or incurs losses based on the changes in the asset's price. This type of financial instrument allows traders to engage in short-term trading strategies without the need for the physical delivery of the underlying asset.

Other options do not accurately represent what a CFD encompasses. For example, an agreement to hold stock assets for a predetermined period refers more to a traditional holding pattern rather than the trading nature of CFDs. An upfront payment for a future asset purchase describes another kind of financial arrangement, often associated with options or futures contracts. Lastly, the reference to a type of derivative involving only physical assets does not apply to CFDs, as they can be based on a variety of underlying assets, including stocks, indices, commodities, and currencies, not limited to physical assets.