CFD (contract for difference)
A CFD (contract for difference) is an agreement with a broker under which you receive or pay the change in an asset's price between opening and closing a trade, without owning the asset.
How it works
CFDs are used to trade indices, gold, oil, shares, currencies and crypto. You do not buy the asset; you make a deal with the broker on its price change. You can go long or short, usually with leverage, putting up only part of the value as margin.
Holding a position overnight costs a financing fee (swap), and the broker earns from the spread and sometimes a commission. Since the broker is your counterparty, who it is and how it is regulated matters. CFD rules differ a lot by country: some cap leverage for retail clients, and some countries, such as the US, do not offer CFDs to retail traders.
Risk is high because of leverage. In the EU, brokers must disclose what share of retail accounts lose money on CFDs, and it is usually more than half. Negative balance protection at some brokers stops you losing more than your deposit, but you need to check it applies.
You open a gold CFD: 10 ounces at $2,400, 20:1 leverage, $1,200 margin. Gold rises to $2,430: profit 10 × $30 = $300, minus spread and swap. If gold falls to $2,340, you lose $600, half your margin.
The main mistake is treating a CFD as the same as buying the asset. You do not own the gold or the share, you pay to hold the position every day, and you trade with leverage. Holding a CFD long term can lose a noticeable part of the result to swaps. Keep size small, use a stop and check the broker's regulation.
Questions and answers
What is a CFD in simple terms?
It is a deal with a broker on a price difference. You gain or lose from the asset's price change but never receive the asset itself.
Can you lose more than your deposit with CFDs?
It depends on the broker and country. Many jurisdictions protect retail clients from a negative balance, but not all, so check the terms.
How is a CFD different from a futures contract?
A futures contract is a standard exchange-traded contract with an expiry date, while a CFD is an over-the-counter agreement with a broker, usually with no expiry but a daily holding fee.
Related terms
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Updated: 2026-10-19