CFD trading is one of those things that sounds complicated until you break it down into plain English.

A CFD is a Contract for Difference. It’s a type of derivative that lets you speculate on price movement in markets like FX, indices, shares, and commodities – without owning the underlying asset. Instead of buying the actual share, holding the physical commodity, or exchanging currency, you’re trading a contract that mirrors the price movement of that asset.

The Basics

You’re Trading Price Movement, Not Ownership

When you buy a share the traditional way, you usually own it. That ownership can come with things like voting rights, dividends (depending on the company), and long-term holding.

With CFDs, you don’t own the asset. You’re entering into a contract with us that tracks the price of the underlying market. Your result is based on the difference between the opening and the closing value of your position.

  • If the market moves in your favour, net of fees, you profit
  • If it moves against you, net of fees, you lose
  • Associated costs such as financing, dividends and trading fees are included in the contract

That’s the “difference” in the name – it is a contract to exchange the difference in value from open to close.

CFDs Can Work in Either Direction

One reason CFDs are popular is you can go both long and short easily:

  • Going long means you’re speculating the price will rise
  • Going short means you’re speculating the price will fall

This lets you express your ideas in the market, and gives you more freedom than other traditional assets like shares.

CFDs are Usually Traded on Margin

Margin means you only need to commit a portion of the total position value to open a trade.

Your Free Margin is the current equity in your account which isn’t already committed as Margin for existing positions.

For example:

  • A position might represent $10,000 USD worth of exposure
  • But you might only need $500 USD in Free Margin to open that position (depending on the product and margin requirements)

That’s why CFDs are described as leveraged products – the amount you need to deposit to open a position is usually less than the value of the position.

Leverage Magnifies Outcomes

Leverage can amplify gains, but it also amplifies losses.

It means you can make or lose money quickly – which increases both the risk and rewards. It is one of the reasons CFDs are so popular, but also why you should be aware of the mechanics of a CFD contract before you trade.

Margin Calls and Stop-outs

If the market moves sharply, you may be required to add funds to maintain the position, or adjust your exposure. This is known as a Margin Call, and you will see your margin shortfall directly in the trading platform. We also try to contact you to let you know, but it is your responsibility to monitor your positions. Our default Margin Call level is when your equity drops to 100% of the Margin required for your positions

Your position may be closed out if the market continues to move against you – a Stop Out. This is an automated process that triggers when the pre-defined stop-out level is reached. By default, this is triggered when your equity drops to 50% of the Margin required for your positions.

These mechanisms exist to manage risk on margin accounts. They don’t guarantee you won’t lose more than expected in fast markets, but they are part of how leveraged trading systems function.

Common CFD Costs

Even if you correctly predict direction, costs can still matter – especially for active strategies.

Here are the most common costs you’ll see with CFDs:

Spread

This is the difference between the buy price and sell price. It’s effectively a cost you “pay” when entering and exiting, because you’re buying at one price and selling at another. There’s both a spread due to where liquidity providers are willing to provide a buy and sell price, as well as spread fees for certain account types, such when trading FX and Metals on our Standard and Swap-free accounts.

While TabTrade often has zero average spreads for some symbols like Major FX on certain accounts, spreads can still widen – particularly during news events, holidays and market uncertainty.

Commission

Some products and accounts are commission-based, such as Cryptocurrency symbols and our Edge Account for FX and Metals.

When you trade on commission-based products, you will see a separate commission charge on each deal in your history. It won’t always be shown on the open position itself, so be sure to check your trading history for a full view of your fees.

Overnight Financing / Swaps

If you hold certain CFD positions overnight, you may pay (or receive) a financing adjustment. This called swap or overnight funding. It’s one reason why holding a CFD for weeks is often very different (cost-wise) to holding it for minutes or hours.

Corporate Actions and Other Fees

There are also some less common fees you might encounter, which will depend on what you trade and how you trade. Common examples are corporate actions on Indices and Stocks: when a company goes “ex-dividend” it can cause an adjustment if that company is part of the underlying product being traded. It’s similar for other corporate actions such as spinoffs, stock splits and mergers. If you are trading during particular times when these apply, you might see adjustments to your account or positions.

There are also other fees which might apply less commonly, such as Swap-free Service Fees. Please see the PDS (Product Disclosure Statement) for more information about fees.

The Markets You Can Trade With CFDs

CFDs can reference a wide range of underlying markets, such as:

  • FX (foreign exchange): currency pairs like EURUSD, GBPUSD, AUDJPY
  • Indices: such as US100 (US Tech index) or GER40 (German Stock index)
  • Commodities: gold, oil, silver or natural gas
  • Shares: individual company stocks
  • Cryptocurrencies: with 24/7 trading

Even though the underlying markets differ, the CFD structure remains the same: a contract that tracks price movements of that underlying asset.

Trading (CFDs) vs Investing

Here’s a simple comparison:

Traditional investing (e.g., buying shares)

  • You typically own the asset
  • Often used for longer-term holdings
  • Not always leveraged (unless you use margin lending)
  • Different cost structure and risk profile

CFDs

  • You do not own the asset
  • Often used for shorter-term speculation
  • Typically leveraged via margin
  • May include financing costs

Understanding the structure helps you decide whether CFDs even make sense for your goals and risk preferences.

Key points

  • A CFD (Contract for Difference) is a contract that tracks the price movement of an underlying asset – you don’t own the asset.
  • Your profit or loss is based on the difference between the opening and closing value.
  • CFDs use margin, meaning you can trade with leverage – which magnifies both gains and losses.
  • Common CFD costs include spreads, commissions, and often overnight financing for positions held beyond a day.
  • You can usually trade long or short across markets like FX, indices, shares, and commodities.