An agreement about price, not ownership
A contract for difference, or CFD, is an agreement between you and your broker to exchange the difference in an asset's price between when you open and close the position. If you buy a CFD on gold at 2,000 and close it at 2,020, the broker pays you the 20-point difference multiplied by your position size. If it falls to 1,980, you pay them.
The key point is that you never own the underlying gold, share, or currency. You simply hold a position that tracks its price. This makes CFDs flexible — you can go long or short easily — but it also means you are exposed to the broker as your counterparty, which is one more reason regulation matters.
Leverage is built in
CFDs are leveraged products, meaning you put down only a fraction of the position's value as margin. With 30:1 leverage, a €330 deposit controls roughly €10,000 of exposure. This magnifies both gains and losses on the full position size, not just on your deposit.
A worked example makes this vivid. Suppose you open a €10,000 position and the market moves 1% against you. That is a €100 loss — nearly a third of your €330 margin — from a move that sounds tiny. This is why leverage is the single biggest reason beginners lose money faster than they expect.
The ongoing costs
CFDs carry costs that eat into returns: the spread on every trade, sometimes a commission, and overnight financing charges (often called swap) if you hold positions past the daily cut-off. Holding a leveraged CFD for weeks can quietly accumulate meaningful financing costs.
These costs are not hidden, but they are easy to ignore when focusing on price direction. Before trading any instrument, check its spread, commission, and overnight charge so you know what the market must do just for you to break even.
Who CFDs are not for
Regulators across Europe and elsewhere publish data showing that the majority of retail CFD accounts lose money. That figure is not a scare tactic; it is the base rate you are working against. CFDs suit people who understand leverage, size positions carefully, and accept losses without emotion.
If you want long-term ownership of an asset — shares you keep for years, for example — a CFD is usually the wrong tool because of financing costs and the lack of real ownership. Match the instrument to the goal, and be skeptical of anyone presenting CFDs as a simple path to income.