No asset owned, just the price's move:a contract for the difference, to gain or lose.
A derivative product that allows you to speculate on price movements without owning the underlying asset.
CFDs mirror the price of the underlying instrument and are traded on margin.
In plain words
A contract for difference is an agreement with a provider to exchange the difference between an instrument’s price when the contract is opened and its price when it is closed. The trader never owns the underlying share, index or commodity; only the change in price is settled, in cash. CFDs are traded on margin, meaning only a fraction of the position’s full value is deposited.
See it move
Difference: the distance between Closing price and Opening price
Why it matters
A CFD allows a position on a rising or a falling price without owning the asset, and with a deposit much smaller than the position. That leverage magnifies losses as much as gains, and a loss can exceed the margin deposited.
Worked example
An example only. The figures are round and invented for the arithmetic: they are not market prices.
A trader buys 10 CFDs on an invented share at 100, with a margin requirement of 10%, and closes at 104.
- 1Position value = 10 × 100 = 1,000
- 2Margin = 10% × 1,000 = 100
- 3Difference = 104 − 100 = 4 per CFD; 4 × 10 = 40 gained
- 4Had the price fallen to 96−4 × 10 = 40 lost
A 4% move in the share is worth 40, which is 40% of the 100 deposited, in either direction.
A common mistake
Buying a share CFD is not the same as buying the share. There is no ownership and there are no shareholder rights; the contract is with the provider, and dividends appear as cash adjustments.
Check yourself
Learn more
- Academy lessonHow a blockchain settles a paymentWhat a blockchain is, how a payment on it becomes final, and how Bitcoin, Ethereum and stablecoins differ. The technology, explained without a view on price.
- Academy lessonCrypto markets: custody, weekends and venuesHolding a coin against holding a contract on its price, why a market that never closes is thinner at weekends, and why one coin has different prices on different venues.
Educational information, not investment advice or a recommendation to trade.