CFD (Contract for Difference)

A CFD (Contract for Difference) is a leveraged trading product that allows you to speculate on price movements without owning the underlying asset. You agree with the broker to exchange the difference between the opening and closing price of a position. CFDs can amplify both gains and losses and carry higher risk than unleveraged investments, making broker selection and risk controls especially important.

In plain terms, a CFD is a bet on price movement rather than ownership. When you trade a CFD, you do not buy shares, currencies, or commodities directly. Instead, you trade a contract with the broker that mirrors the price movement of the underlying market. If the price moves in your favour, you profit; if it moves against you, you incur a loss.

CFDs make a wide range of markets accessible from a single platform and allow both long and short positioning. However, the combination of leverage, costs, and broker-specific rules means outcomes depend heavily on execution quality and risk management. For many retail traders, losses arise not from market direction alone, but from how CFDs behave during volatility, spread widening, and margin pressure.

CFDs are broker-issued products, so the broker is a central part of the transaction. This makes broker choice especially important. When comparing CFD brokers, users should assess:

• Regulation and client protections in their jurisdiction.

• Typical spreads, commissions, and overnight financing rates.

• Margin requirements and leverage limits by asset class.

• Execution quality, slippage handling, and order types.

• Availability of negative balance protection.

From a monetisation perspective, CFD content naturally funnels users into broker comparison pages, as costs and risk controls differ materially between platforms and directly affect outcomes.

• Using high leverage on CFDs without understanding margin and stop-out rules.

• Ignoring overnight financing costs on positions held longer than a day.

• Trading CFDs during volatile events without accounting for spread widening.

• Assuming all losses are controllable with stop-losses; gaps can bypass stops.

• Choosing lightly regulated or offshore brokers for higher leverage without adequate protections.

Risk note: CFDs are complex instruments and come with a high risk of rapid losses due to leverage. Retail traders can lose money quickly, especially in volatile or illiquid markets.

You trade a share CFD with a market price of £100 and use 5:1 leverage.

• You open a position equivalent to £5,000 using £1,000 in margin.

• If the share price rises by 2%, you gain £100 (2% of £5,000).

• If the share price falls by 2%, you lose £100.

A larger adverse move, spread widening, or overnight financing charges can quickly erode your margin, potentially triggering a margin call or forced closure if losses continue.