CFD (Contract for Difference) trading is a popular way to speculate on price movements without owning the underlying asset. Most forex brokers offer CFDs on forex, indices, stocks, commodities, and crypto. But CFDs come with their own terminology — and their own risks. Here’s what every term means and why it matters.
Trading involves risk. CFDs are complex instruments with high risk of losing money rapidly due to leverage. 70-90% of retail investor accounts lose money when trading CFDs. This glossary is for educational purposes only.
CFD Terms
CFD (Contract for Difference)
A contract between a trader and a broker where they exchange the difference in the price of an asset from the time the contract opens to when it closes. You never own the underlying asset — you’re speculating on the price movement. This means no delivery, no physical ownership, and no stamp duty (in most jurisdictions). CFDs are the primary instrument offered by forex brokers like IC Markets, Pepperstone, and Exness (compare CFD brokers →).
Contract Specifications
The detailed terms of a CFD: contract size (e.g., 1 CFD = 1 share, or 1 CFD = 10 barrels of oil), minimum trade size, tick value (profit/loss per minimum price movement), margin requirement, and trading hours. Always check spec sheets before trading a new instrument — they vary by broker and asset (compare contract specs across brokers →).
Example: US30 (Dow Jones) CFD has a contract size of 1, minimum trade of 1 contract, and a pip value of $1 per point. If US30 moves 100 points and you hold 1 contract, your P&L is $100.
Overnight Fee (Swap)
The cost of holding a CFD position past the daily rollover time (typically 5 PM ET / 10 PM GMT). Overnight fees are based on the interest rate differential between the two currencies in the pair, plus a broker markup. Long-term CFD traders pay close attention to swap rates — they can eat into profits significantly. Day traders and scalpers don’t need to worry about swaps since they close positions before rollover (see how leverage affects holding costs →).
Example: You buy 1 lot of EUR/USD CFD and hold it for 30 days. The daily swap is -$0.50. That’s $15 in holding costs over the month — not huge, but it adds up with multiple positions.
Spread Betting
A product similar to CFDs but with different tax treatment in the UK and Ireland. Spread betting is tax-free (no capital gains tax) in these jurisdictions. The mechanics are similar: you bet on price direction, and profit/loss is determined by the difference. Spread betting uses “points” instead of “pips” and “per point” stakes instead of position sizes. Most brokers offer either CFDs or spread betting depending on the client’s location.
Margin Call
A warning from your broker that your account equity has fallen below the required margin level. When this happens, the broker demands you deposit more funds or close positions. If you don’t act, the broker will automatically close your positions to protect themselves from further losses. Margin calls happen fastest with high leverage — a few pips against you can trigger one. To avoid margin calls: use stop losses, limit leverage, and never risk more than 1-2% per trade (learn risk management →).
Example: You have $500 in your account and open a $50,000 position with 1:100 leverage ($500 margin). Price moves 1% against you — your loss is $500. Your equity is now $0. The broker issues a margin call and closes your position.
Leverage
Borrowed capital that amplifies both profits and losses. In CFD trading, leverage is expressed as a ratio (1:10, 1:30, 1:100, 1:500). Higher leverage means you control a larger position with less capital — but it also means small price movements have a bigger impact on your account. ESMA regulations cap retail leverage at 1:30 for major forex pairs in the EU. Offshore brokers may offer up to 1:1000 (learn leverage in detail →).
Execution
How your trade order gets processed and filled. ECN (Electronic Communication Network) execution matches your order directly with liquidity providers — fast, transparent, but may have variable spreads. Market maker execution goes through the broker’s dealing desk — fixed spreads but potential requotes. DMA (Direct Market Access) gives you direct access to the order book. For scalpers and high-frequency traders, execution quality is everything (compare execution across brokers →).
Next Steps
Now that you understand CFD trading terms, here’s what to learn next:
Forex Terminology → — Learn pip, lot, spread, and leverage basics.
What Is Leverage? → — Master leverage and margin before trading CFDs.
Compare CFD Brokers → — Find the best broker for CFD trading.
CFDs are complex instruments with high risk of losing money rapidly due to leverage. 70-90% of retail investor accounts lose money when trading CFDs. This glossary is for educational purposes only.
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