What CFDs Are, and What They Are Not
How contracts for difference work, and the risks they carry.
This guide explains how a market or product works, including its material risks. It is educational only and is not investment advice. Leverage magnifies losses as well as gains, education does not remove financial risk, and trading is not a reliable source of income.
A contract for difference (CFD) is an agreement to exchange the difference in the price of an asset between the time a position is opened and the time it is closed. The trader does not own the underlying asset.
Potential uses
CFDs allow exposure to price moves in both directions and are sometimes used to hedge other positions.
Material risks
CFDs are leveraged: a small price move can cause a large loss relative to the money deposited. Costs such as commissions and overnight financing reduce returns. In the EU, providers must publish the percentage of retail accounts that lose money, and that figure is typically a majority.
Sources and data
- ESMA, product intervention measures on CFDs
- National regulator investor guidance
Corrections and updates
No corrections recorded. See our Corrections Policy.