Glossary · from the DESK dictionary
Contract for Difference (CFD)
A derivative financial instrument allowing traders to speculate on price movements of an underlying asset without actually owning it.
In plain words
The profit or loss exactly matches the price difference between opening and closing the position.
In more detail
A CFD is an over-the-counter contract on the difference between an underlying's opening and closing price — the investor never owns the underlying. The advantages are leverage, easy shorting and access to many markets through one account. The costs sit in the spread, overnight financing and the provider's role as counterparty. In the EU leverage for retail is capped and negative balance protection mandatory — regulation responding to the fact that most retail CFD clients lose money.
Example
An investor trades the DAX via CFDs at 20 times leverage. The provider discloses, as required, that 74 percent of its retail clients lose money. Across six weeks the investor pays 340 euros of financing on a position whose price gain is 420 euros.
What it means for traders
A widely used, heavily leveraged trading instrument among retail investors, especially in Europe.
Common pitfalls
High leverage leads to significant loss risk — the majority of retail traders lose money with CFDs.
Related terms
Margin Close-Out Rule · Synthetic Agreement for Forward Exchange (SAFE) · Overnight Financing
From the DESK dictionary. For information only, not investment advice.
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DESK is a research tool and not investment advice. Page generated: 2026-10-12.