CFDS, EXPLAINED

What is a CFD?

TrueBroker is a free broker safety checker, and this page is its plain explanation of the product most of the brokers on its board sell: the contract for difference. What it is, what it costs to hold, how it differs from a share or a future, and why the company on the other side of the contract matters more than the price on the screen.

What does CFD mean?

CFD stands for contract for difference. It is an agreement between you and a broker to exchange the difference in the price of something, a currency pair, an index, a share, gold, between the moment you open a position and the moment you close it. If the price moves the way you chose, the broker pays you the difference. If it moves the other way, you pay the broker. You never own the thing itself. You own a contract, and the broker is the other party to it.

How does CFD trading work?

• You choose a direction. Buying, or going long, profits if the price rises. Selling, or going short, profits if it falls.
• You put down margin, a fraction of the position’s full value. The broker lends the rest of the exposure, which is what leverage means.
• Your profit or loss is the price move multiplied by the full size of the position, not by the margin you put down.
• If losses eat the margin down to a level the broker sets, the broker closes the position for you. In our IG review, a retail client’s positions may be closed automatically once equity falls below 50 percent of the margin requirement.

What is leverage, and how much do brokers offer?

Leverage is the ratio between the position and your margin. At 30:1 a 1,000 dollar deposit controls 30,000 dollars of exposure, and a move of about 3.3 percent against you equals the whole deposit. At 1000:1 a move of one tenth of one percent does. How much you are offered depends on the company, not the brand: in our XM review the same account carries 30:1 at the Cyprus company and 1000:1 at the Belize company, and FBS‘s CySEC entity is capped at 1:30 on major currency pairs under EU rules. High leverage is not a gift. It is the reason a small move ends an account.

What does a CFD cost?

• The spread, the gap between the buy and the sell price, paid on every trade.
• A commission on some account types, charged per lot instead of, or on top of, a wider spread.
• Overnight financing, also called swap, charged for each night a position stays open.
• Charges around the account: withdrawal fees, and at some brokers an inactivity fee.

For a sense of scale, the published costs in our reviews for one standard lot of EUR/USD, opened and closed, sit around 5 to 6 US dollars at the cheaper accounts: about USD 5 on Exness‘s Raw Spread account, from USD 5 on FBS’s Standard account and from USD 6 on BlackBull Markets‘ ECN Prime. A “from” price is the best case, not the average, and some brokers publish no figure at all.

What is the difference between a CFD and a stock?

A share is a piece of a company. You own it, you can hold it for decades, and what you own does not depend on your broker staying solvent in the same way. A CFD on that share only tracks its price. You get no ownership and no vote, you pay financing for every night you hold it, you can go short as easily as long, and your claim is against the broker. CFDs suit short positions held for hours or days. They are an expensive way to hold something for years.

What is the difference between a CFD and a future?

A future is a standardised contract traded on an exchange. It has an expiry date, a published contract size, and a clearing house standing between buyer and seller. A CFD is a private contract with one broker, usually with no expiry, in whatever size the broker allows, at the price that broker quotes. Futures put the exchange’s rules between you and your counterparty. With a CFD the counterparty is the broker, so the broker’s licence and conduct are part of the product.

Can you lose more than you deposit?

It depends on the company you sign with. Some regulators require negative balance protection for retail clients, which stops a loss at zero, and some offshore licences require nothing of the kind: BlackBull Markets‘ Seychelles regulation comes with no negative balance protection requirement, and Pepperstone states that the protection does not apply to its Pro accounts. Brokers regulated in the EU and the UK also print the share of retail accounts that lose money in their own risk warning. Read that number on the broker you are considering.

Why does the company behind the CFD matter?

Because the broker is your counterparty, the rules that protect you are the rules that bind that one company. The same brand can put you with very different ones. In our Exness review the FCA and CySEC entities do not serve retail clients, whose CFD trading runs through offshore entities. In our Deriv review the Malta licence, which brings 20,000 euros of compensation cover, an ombudsman and negative balance protection, covers only part of the brand. Compensation differs just as widely: up to 85,000 pounds under the UK scheme, 20,000 euros in Cyprus, and nothing at all under a South African licence, on our money protection table as read on 6 September 2026.

So check the company before the spread. How to check a broker walks through the registers, and the rankings start at best CFD brokers, with local lists for South Africa, the UAE and Singapore.

Fair questions

THE SHORT VERSION

A CFD is a contract with a broker on the direction of a price, traded on margin, with a spread, sometimes a commission, and financing for every night you hold it. You never own the asset, and the broker is the other side. TrueBroker holds 233 brokers on record, each scored on who that company is and what its licence really covers.