# CFD trading: what it is, how it works and the risks > A CFD is a leveraged bet on a price change without owning the asset. Learn how CFDs work, why most retail accounts lose, and why the US bars them. Written by [Tactfolio research team](https://tactfolio.com/about/editorial-policy.md), published 2026-10-16, updated 2026-10-16. CFD trading is a deal with a broker. You swap the change in an asset's price from when you open a trade to when you close it. CFD stands for contract for difference. You never own the stock, gold or currency itself. CFDs are usually traded with borrowed money, so small price moves can mean big gains or big losses. Retail traders in the United States can't legally trade them. ## Key points - A CFD is a contract with your broker, not a share of the asset. You profit or lose on the price change. - CFDs use [leverage](https://tactfolio.com/learn/leverage-explained.md): you put down a small deposit to control a much bigger position. - Studies by European regulators found that 74% to 89% of retail CFD accounts lose money ([ESMA](https://www.esma.europa.eu/press-news/esma-news/esma-agrees-prohibit-binary-options-and-restrict-cfds-protect-retail-investors)). - CFDs are not available to retail traders in the US. US law limits these contracts to large, qualified investors unless they trade on a registered exchange ([SEC](https://www.sec.gov/news/pressrelease/2015-123.html)). - In the UK and EU, rules cap leverage for retail traders and stop losses from going past the money in the account. > **Risk note.** Leverage makes losses bigger as well as gains. You can lose more than you put in. CFDs are not available to retail traders in the United States. ## What is a CFD? A CFD (contract for difference) is an agreement between you and a broker. If the price of the asset goes up while your trade is open, the broker pays you the difference. If it goes down, you pay the broker. You can trade CFDs on many things: single stocks, stock indexes, currencies, gold, oil and crypto. You can bet on prices rising (going **long**) or falling (going **short**). You don't own the asset, so you get no voting rights. You may get a cash adjustment for dividends, depending on the broker. ## How does CFD trading work? An example Say a stock trades at $100. You think it will rise. You open a CFD for 100 shares, which is a $10,000 position. Your broker asks for a 20% deposit, called **margin**. You put down $2,000. That is 5 to 1 leverage. - **The stock rises to $110.** Your position is worth $11,000. You gain $1,000. That is a 50% gain on your $2,000. - **The stock falls to $90.** Your position is worth $9,000. You lose $1,000. That is half your deposit gone. - **The stock falls to $80.** You lose $2,000. Your whole deposit is gone, from a 20% drop in the stock. Most brokers will close your trade before that point. If your account falls below a set level, you get a **margin call**: add money or the broker closes the trade for you. Stock brokers use the same idea in [margin trading](https://tactfolio.com/learn/margin-trading.md). On top of price moves, CFDs carry costs: - **The spread:** the gap between the buy price and the sell price. - **Overnight financing:** a daily fee to hold a leveraged position past the end of the day. - **Commissions** on some trades, such as single stocks. ## Why are CFDs not allowed in the US? US law treats most CFDs as a type of swap. Under the Dodd-Frank Act, swaps on single stocks can be sold to everyday investors only through a registered exchange with a registered offering. CFDs trade directly between a broker and a client, so they don't meet that rule. The SEC has acted against firms that offered these contracts to everyday US investors. In 2015 it charged Sand Hill Exchange for selling security-based swaps to retail investors outside of an exchange ([SEC](https://www.sec.gov/news/pressrelease/2015-123.html)). The CFTC applies similar rules to swaps on commodities and currencies. So if you live in the US, be wary of any website that offers you CFDs. It is likely an offshore firm outside US protection. ## CFD rules in the UK and EU In 2018, the European Securities and Markets Authority (ESMA) set limits on CFDs sold to retail traders. The UK's Financial Conduct Authority (FCA) made similar rules permanent in 2019 ([FCA](https://www.fca.org.uk/news/press-releases/fca-confirms-permanent-restrictions-sale-cfds-and-cfd-options-retail-consumers)). Firms must: - Limit leverage to between 30 to 1 and 2 to 1, depending on how risky the asset is. - Close a client's trades when their money falls to 50% of the margin needed. - Make sure a client can't lose more than the money in their CFD account. - Show a warning with the share of their retail clients who lose money. These rules lower the risk. They don't remove it. Most retail CFD accounts still lose money. ## Common mistakes - Using the highest leverage on offer. A small move against you can wipe out the account. - Forgetting overnight financing. Holding a CFD for weeks can cost a lot even if the price doesn't move. - Trading with an offshore broker outside your country's rules. - Treating CFDs like owning shares. You own nothing, and the broker is on the other side of your trade. - Skipping the risk warning. The share of losing accounts is printed there for a reason. ## Try it on Tactfolio Tactfolio does not offer CFDs, margin borrowing or short selling. It is a place to build and test long-only rules for US stocks and funds, without borrowed money. If you want more market exposure without borrowing, [leveraged ETFs](https://tactfolio.com/learn/leveraged-etfs.md) are one route, with their own risks. If you want protection when markets fall, there is an idea without leverage. Use a rule that moves to bonds or cash when stocks drop below a long-term trend. The [Faber 10-month moving average model](https://tactfolio.com/strategies/faber-10-month-moving-average.md) does this. You can read every rule, see its hypothetical backtest, and build your own in the [strategy builder](https://tactfolio.com/builder). To learn about other contracts traders use, see [put vs call](https://tactfolio.com/learn/put-vs-call.md), [what theta means](https://tactfolio.com/learn/theta-meaning.md) and [commodities explained](https://tactfolio.com/learn/commodities-explained.md). ## Common questions ### Is CFD trading the same as buying shares? No. When you buy shares, you own part of a company. With a CFD, you only have a contract with your broker about the price change. You have no ownership and usually no voting rights. ### Can you lose more than you invest with CFDs? It depends on where you live and your broker. UK and EU rules for retail traders stop losses from going past the money in your CFD account. In places without that protection, you can lose more than your deposit. ### Why do most CFD traders lose money? Leverage turns small price moves into big gains or losses, and costs such as spreads and overnight fees add up. Regulators in Europe found 74% to 89% of retail accounts lose money. Brokers there must show their own percentage. ### Can Americans trade CFDs? Not legally as retail traders. US rules limit these contracts to large, qualified investors unless they trade on a registered exchange. US residents usually trade options or futures instead, which are regulated in the US. ### What is the difference between CFDs and futures? Futures trade on public exchanges with set contract sizes and end dates. CFDs are private deals with a broker and usually have no end date. In the US, futures are legal for retail traders and CFDs are not. ## Put it into practice - [Leverage calculator](https://tactfolio.com/trading-tools/leverage-calculator.md): See your effective leverage, what a 1% price move does to your account, and the move that would wipe it out. - [Margin calculator](https://tactfolio.com/trading-tools/margin-calculator.md): Free forex margin calculator. Work out the margin a trade needs from its size, price and leverage, with the formula, the rules and an example. - [Pip calculator](https://tactfolio.com/trading-tools/pip-calculator.md): See what one pip is worth for any currency pair, trade size and account currency, with the formula and a worked example. ## Sources - [ESMA agrees to prohibit binary options and restrict CFDs to protect retail investors](https://www.esma.europa.eu/press-news/esma-news/esma-agrees-prohibit-binary-options-and-restrict-cfds-protect-retail-investors), European Securities and Markets Authority, March 27, 2018, accessed 2026-10-16 - [FCA confirms permanent restrictions on the sale of CFDs and CFD-like options to retail consumers](https://www.fca.org.uk/news/press-releases/fca-confirms-permanent-restrictions-sale-cfds-and-cfd-options-retail-consumers), Financial Conduct Authority, accessed 2026-10-16 - [SEC announces enforcement action for illegal offering of security-based swaps](https://www.sec.gov/news/pressrelease/2015-123.html), U.S. Securities and Exchange Commission, June 17, 2015, accessed 2026-10-16 - [Basics of futures trading](https://www.cftc.gov/LearnAndProtect/AdvisoriesAndArticles/FuturesMarketBasics/index.htm), Commodity Futures Trading Commission, accessed 2026-10-16