Compounding for Differences Law and Legal Definition

Compounding for differences is a form of gambling in stocks, securities, and commodities. It is settling a contract without executing its complete terms. In such a gambling, a fictitious sale is made for delivery at a future time with no intention to deliver and settlement is made with no difference between the contract price and the market price. For example, A buys 100 shares of stock at 100 from B, the stock to be delivered in 30 days. At the end of 30 days the price of the stock is 98 and A pays B $100 instead of taking the stock.