How contracts for difference work: profiting from rising and falling prices without owning the asset, leverage and margin, every cost, and the risks.
Quick answer: a CFD (contract for difference) is a contract with a broker to exchange the change in an asset's price between when you open and when you close a trade. If you buy and the price rises, you gain the difference; if you sell and it falls, you gain the difference. You never own the asset, you can trade rising and falling markets, and you trade on margin, which magnifies both gains and losses.
How a CFD trade works
Every CFD trade has the same four parts: the instrument, the direction, the size and the two prices.
Suppose EUR/USD is quoted at 1.1250 and you expect the euro to rise. You buy 1 lot (100,000 euros). Later the price is 1.1300 and you close.
Price change: 1.1300 - 1.1250 = 0.0050 Profit: 0.0050 × 100,000 = $500
Had the price fallen to 1.1200, the same trade would have lost $500. If you had expected the fall and sold instead, the numbers reverse: you make $500 on a fall to 1.1200 and lose $500 on a rise to 1.1300.
Nothing was delivered. No euros changed hands. The broker settled the difference in your account currency, which is the whole idea of a contract for difference.
Leverage and margin, without the jargon
To open that 1-lot EUR/USD position you do not need $112,500. You put up margin, a deposit that is a fraction of the position's value. At 1:100 leverage the margin is 1/100 of the value: about $1,125.
That is what makes CFDs efficient and what makes them dangerous. The $500 profit above is 44% of the margin, from a price move of less than half a percent. The same move the other way costs the same $500. The margin is not your maximum loss: losses come out of your whole balance, and if your margin level falls to the stop-out level, the platform closes positions automatically.
A useful rule: decide the dollar amount you are prepared to lose on a trade first, then choose a position size that loses exactly that if your stop-loss is hit. The position size calculator does the arithmetic, and the margin calculator shows the margin for any instrument and leverage.
What it costs to trade a CFD
Spread. You buy at the higher (ask) price and sell at the lower (bid) price. The gap is a cost you pay when you open. It varies with the instrument, the time of day and the account type.
Commission. Some accounts charge a commission per lot in exchange for tighter, raw spreads. At GCC Brokers the Standard and Pro accounts have no commission; the Zero account has raw spreads from 0.2 pips plus a commission. See account types.
Swap (overnight financing). A position still open at the daily rollover is charged or credited a swap, reflecting the interest cost of the leveraged position. It can be positive or negative, depends on the direction, and is tripled on one night of the week to cover the weekend. Our explainer on swap fees covers it in detail, and the swap calculator uses the live rates.
CFDs compared with owning the asset
| Buying the asset | Trading a CFD | |
|---|---|---|
| Ownership | You own it | Price exposure only |
| Profit from falling prices | No | Yes, by selling |
| Money needed | Full value | Margin, a fraction of the value |
| Holding cost | Custody, storage | Overnight swap |
| Dividends, delivery | Yes | No |
| Can lose more than you put in | No | Yes, with leverage |
CFDs suit traders who want short-term exposure to price moves in either direction across many markets from one account. Investors who want to own an asset for years are usually better served by buying it.
What you can trade as a CFD
At GCC Brokers you can trade more than 100 instruments as CFDs on MetaTrader 5:
- Forex: over 40 currency pairs, including EUR/USD, GBP/USD and USD/JPY.
- Metals: gold (XAU/USD), silver and others. See how to trade gold.
- Indices: US30, NAS100, US500, DE40 and more.
- Commodities: WTI and Brent crude oil, natural gas.
- Crypto CFDs: Bitcoin, Ethereum and other major coins.
- Futures and perpetuals.
The full list, with contract sizes, margin and swap rates for each instrument, is on the markets page.
The risks, stated plainly
- Leverage magnifies losses as much as gains, and losses can exceed your deposit in fast markets.
- Prices can gap over weekends and around major news, past a stop-loss.
- Overnight costs accumulate on positions held for weeks.
- CFDs are traded with a broker, not on an exchange, so you depend on the broker's regulation and financial standing. GCC Brokers Limited is regulated by the Financial Services Commission of Mauritius (licence GB22200739), which you can verify on the regulation page.
GCC Brokers executes CFD orders through fully automated STP execution, with no requotes and no filtering by profitability.
Trading FX and CFDs on leverage carries significant risk and may not be suitable for all investors. You may lose more than your initial deposit.
Questions on this topic.
What is a CFD in simple terms?
A CFD (contract for difference) is an agreement with a broker to exchange the difference in an asset's price between when you open and when you close the trade. You profit if the price moves in the direction you chose and lose if it moves the other way. You never own the underlying asset.
Can you lose more than you invest with CFDs?
Yes. CFDs are traded on margin, so a fast move or a price gap can produce a loss larger than the money in the account. Risk per trade should be sized from the stop-loss distance, not from the margin required.
What is the difference between CFDs and buying shares or gold?
Buying the asset gives you ownership and you can only profit if the price rises. A CFD gives you price exposure only: you can go long or short, you trade on margin, you pay overnight financing (swap) instead of storage or custody, and you receive no dividends or physical metal.
What does it cost to trade CFDs?
The main costs are the spread (the gap between buy and sell prices), a commission on some account types, and a swap charged or credited for each night a position stays open. GCC Brokers absorbs deposit and withdrawal processing fees in general; exceptions are disclosed in advance.
What can you trade as a CFD at GCC Brokers?
More than 100 instruments: over 40 forex pairs, gold, silver and other metals, stock indices such as the US30 and NAS100, oil and natural gas, crypto CFDs, futures and perpetuals, all on MetaTrader 5.
Is CFD trading regulated?
CFD providers are regulated by the financial authority that licenses them. GCC Brokers Limited is licensed and regulated by the Financial Services Commission (FSC) of Mauritius, licence GB22200739, which can be verified on the FSC public register.
For information only. This is market commentary and education, not investment advice. Figures are as at the time of writing.