What Are CFDs? Contracts for Difference and Who May Trade Them
A CFD, or contract for difference, is an agreement with a broker to settle the change in an asset's price between opening and closing a trade, without owning the asset. CFDs are sold to retail traders in the UK under strict rules, but US law bars offering them to ordinary retail traders.
All nine UK trading platforms read for this page offer CFDs. For a US reader the product is mostly out of reach by law; for a UK reader it is legal but hemmed in by rules written after regulators studied how customers fared. This page explains the contract, who may be offered one, and the loss figures the firms themselves are required to print.
How it works
Two parties agree to settle a price change in cash. The trader “buys” a CFD on, say, a share at one price and later “sells” it at another. The provider pays the difference if the price rose, and the trader pays it if the price fell. Neither side ever owns the share through the contract.
Either direction is equally easy. Going short is the same few clicks as going long, on indices, currencies, commodities and shares alike.
Only a deposit is put up. The trader posts margin, a fraction of the position’s full value, and the provider in effect lends the rest. That makes every CFD a form of leverage: a small move in the market is a larger move in the account.
The provider earns in several ways. It prices the contract with a spread between the buying and selling price, charges financing on positions held overnight, and on some products charges a commission. Its own terms set those rates, so they differ from firm to firm.
The provider is usually the other side. A CFD is a private contract, not an exchange trade. The trader relies on the firm to honor it, which is the counterparty risk that exchange-traded products are built to avoid.
Who may be offered one
In the United States, two statutes fence off swaps. Section 2(e) of the Commodity Exchange Act, read at uscode.house.gov on 25 Sep 2026, makes it unlawful for anyone other than an “eligible contract participant” to enter into a swap unless it is done on, or under the rules of, a designated contract market.
Section 6(l) of the Securities Exchange Act says the same for security-based swaps, which the Act defines to include a swap based on a single security: off a national securities exchange, only an eligible contract participant may take part. For an individual, the definition in 7 U.S.C. 1a(18) starts at more than $10,000,000 invested on a discretionary basis, or $5,000,000 for someone managing the risk of an asset or liability.
One 2018 case shows both agencies at work. On 27 Sep 2018 the CFTC charged 1pool Ltd with offering “contracts for difference” on gold and crude oil as unlawful retail commodity transactions, because they were not done on or under the rules of a designated contract market. The SEC charged the same firm that day over security-based swaps that an undercover FBI agent bought from the US without meeting the discretionary investment thresholds.
In the UK, CFDs are legal for retail clients under rules the FCA made permanent in policy statement PS19/18, published 1 Jul 2019 and in force from 1 Aug 2019. Since 6 Jan 2021, under PS20/10, UK firms may not sell CFDs on cryptoassets to retail clients at all.
The UK retail rules
Minimum margins by asset. The FCA rule, COBS 22.5.11R in the policy statement, sets the least a retail client must post: 3.33% of the exposure on a major currency pair or certain government bonds, 5% on a major stock index, a minor currency pair or gold, and 10% on a minor index or other commodities.
Shares and anything else not listed need 20%, and the rule’s crypto figure of 50% no longer matters to UK retail clients, since the 2021 ban. In the FCA’s summary those margins mean leverage capped between 30 times and 2 times, depending on how volatile the underlying asset is. Put the other way, the most exposure each rule allows is 30, 20, 10, 5 or 2 times the margin posted.
A forced exit. The firm must close a client’s positions when the account’s funds fall to 50% of the margin needed to keep them open. A firm may close earlier, but not later.
A floor on losses. The rules require protection so that a retail client cannot lose more than the money in the account. Cash bonuses and other inducements to trade are banned.
And a published loss rate. A firm’s standard risk warning must give the percentage of its retail accounts that lost money, recalculated every three months over the previous 12 months. A firm with no retail trades in those 12 months uses a fixed wording instead. That rule is what makes the original data below possible.
A worked example
Take a hypothetical trader at a UK provider with $1,000 in a CFD account held in US dollars, and nothing else in it. The trader buys a CFD on 100 shares of a US-listed company at $50, a position worth 100 times $50, or $5,000.
The FCA minimum for a share is 20%, so the margin is 20% of $5,000, or $1,000: the whole account. The close-out rule applies at 50% of that margin, which is $500 of funds left.
The account reaches $500 after a loss of $500. On 100 shares that is a fall of $5 a share, from $50 to $45, or 10%. At that price the firm must close the position, and the trader has lost half the account on a one-tenth move in the share.
Now the same $1,000 spent on the shares themselves. It buys 20 shares at $50. The same fall to $45 costs 20 times $5, or $100, and nothing is closed; the owner can wait. Financing charges for holding the CFD overnight would add to its cost, at whatever rate the provider’s terms set.
The original data
The figures: the loss percentage each firm prints in its FCA risk warning, read from the UK web page of nine CFD providers on 25 Sep 2026, with the pages saved as they stood. The nine are published as a CSV of UK CFD loss warnings.
Every one said most of its retail accounts lost money. The lowest was Saxo at 60%, then Spreadex at 61% and Capital.com at 65%. CMC Markets showed 68%, and IG and Tickmill both 69%. Pepperstone showed 72.9%, XTB 74% and OANDA 76.6%. Spreadex words its figure as retail investors rather than accounts. Spreadex words its figure as retail investors rather than accounts.
The median of the nine is 69%, and the average 68.4%. Five of the warnings, from IG, CMC Markets, Pepperstone, Capital.com and Spreadex, cover spread bets and CFDs together, because those firms offer both. A tenth firm, ActivTrades, was left out because its UK page showed two different figures.
What the figure does and does not say. It counts accounts, not trades, over the firm’s last 12 months, so it cannot show how much the average account lost or how long it traded. It does show how each firm’s retail accounts as a group fared over that year, with all costs counted. And because the rule fixes the wording, the figures can be compared across firms in a way advertising claims cannot.
The margin rule, drawn from the FCA text. The five minimum margins in COBS 22.5.11R, with the most exposure each allows as a multiple of the margin, are in a CSV of FCA minimum margins. The table below lists them in the order the rule does.
Video coverage is small and mostly about forex. In the 24,971-video corpus this site studies, 7 titles mention CFDs or contracts for difference, from 7 channels, at a median of 2,503 views. The most watched, at 90,474 views, pairs CFDs with long-term forex trading. Each video is counted once.
When it fails
The close-out comes before the idea is proven. The worked example shows a 10% move ending a fully margined share trade. A position can be right about the direction over a month and still be closed in the first week by an ordinary dip.
Financing eats slow trades. Overnight charges are paid every night the position stays open. A trade meant to last months pays them for months, which is one reason the product suits short holding periods better than investing.
The provider sets the price. The quote comes from the firm, not from an exchange order book. In a fast market the spread can widen, and an order to close can be filled well away from the last price seen.
The firm itself can fail. The contract is only as good as the company on the other side. Client money rules and compensation schemes exist in the UK, but they are protections after the fact, not a reason to ignore who the firm is.
And the offshore route for US traders. A US resident who opens an account with an offshore firm to trade CFDs is dealing with a company no US regulator supervises, and the 2018 case above shows US agencies treating such a firm as breaking US law.
Related
The leverage page shows how a deposit that is a fraction of a position turns small price moves into large account moves. The counterparty risk page explains what it means when the firm quoting the price is also the one that owes the money. And the futures page covers the exchange-traded contract that US traders use for the same kind of leveraged exposure.
Read the percentage in a CFD provider’s risk warning before reading anything else on its site. It is a figure the FCA makes UK firms publish about their own customers, and it covers a whole year of real accounts. Then size the first trade so that a close-out would not matter.
— Michael Whitman
This page is educational, not financial advice. Test every idea on your own charts before risking money.