In plain English
What Contract for difference means
A CFD tracks a market such as a share, stock index, commodity, currency pair, or cryptoasset. A client can take a long position if they expect the reference price to rise or a short position if they expect it to fall. Profit or loss is normally calculated from the price movement, the number of contracts, and the contract’s stated value per price increment. The provider is the client’s contractual counterparty, so the product’s terms, prices, margin rules, and adjustments matter.
Why it matters
A CFD can create exposure much larger than the cash posted as margin, which means both gains and losses can be amplified. It also differs from buying the underlying asset: the client generally has no ownership rights, such as voting rights on shares, and may incur financing charges while a position remains open. Regulation can impose protections in some jurisdictions, but it does not eliminate market, execution, or counterparty risk.
Example
Assume a share CFD has a contract size of one share. A client buys 100 CFDs at $50 and closes them at $53. Ignoring spread, commission, financing, and tax, the gain is 100 × ($53 − $50) = $300. If the price instead closes at $47, the loss is $300. The client has traded price exposure rather than purchased 100 shares.
Quick answers
Common questions
Does a CFD give the client ownership of the underlying asset?+
Usually no. A CFD is a contract that references an asset or market price; it generally does not transfer legal ownership of the referenced shares, commodity, currency, or cryptoasset to the client.
How is CFD profit or loss calculated?+
In simplified form, it is the closing price minus the opening price, multiplied by the number of contracts and the applicable contract size. Spreads, commissions, financing, and adjustments can change the net result.
Sources