Basics
CFD
Contract for difference — a leveraged product that tracks an asset's price so you can go long or short without owning it.
Also called: cfds
In practice
You believe gold will fall, so you sell a gold CFD at $2,000 with no physical metal involved. If gold drops to $1,975, the $25 difference is paid to your account. If it rises to $2,025, you owe the $25 difference. You never took delivery of an ounce.
Why it matters for traders
CFDs let retail traders access gold, oil, indices and shares from one account, and crucially let them profit from falling markets by shorting. But because they are leveraged and you never own the underlying, costs (swaps, spreads) and the risk of rapid loss are built in — so understanding the contract is what separates using the tool from being used by it.
Common pitfall
Traders forget that CFDs charge overnight swaps and that leverage amplifies both sides equally, so a 'small' mis-sized position held for weeks can bleed out on financing alone. The pitfall is shorting or longing a market without reading the contract's swap and margin terms first. Know the daily carry, the margin requirement, and the spread for each instrument before you trade it — the product features set your real costs, not just the chart.
Related tips
Related terms
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