Forex glossary
CFD (contract for difference)
A CFD is a derivative settling changes in an underlying price under the contract, without ownership of that underlying asset. Contract size, costs, margin and client protections depend on the product and jurisdiction. Leverage limits require checking the instrument category and client classification.
Illustrative example
How does it work in practice?
Suppose you hold 10 hypothetical share CFDs, each representing one share, with entry and exit prices of 100 and 103 USD per share. The price gain is 30 USD before costs; settling the contracts does not make you the owner of 10 shares.
A case to work through
An index CFD multiplier
Model: long 3 CFD contracts, each worth 2 USD/point; entry is 4,000 and exit 4,012 points.
- The move is 12 points per contract.
- 3 × 2 × 12 gives 72 USD before costs.
What follows? Read the specification’s multiplier before calculating P/L.
Example boundary: This specification is invented for the exercise, not a provider offer.
CFD multiplier and P/L
Text description of the diagram
- Price move: 4,012 − 4,000 = 12 points.
- Multiplier: 2 USD/point/contract.
- Three contracts: 12 × 2 × 3 = 72 USD.
A useful distinction
CFD (contract for difference) / Spot (immediate settlement)
Spot can mean deliverable asset exchange; a CFD provides contractual price exposure.
Check your understanding
Apply a contract multiplier to a price result.
Show the answer and explanation
48 USD
2 × 3 × 8 = 48 USD.
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Related terms
Sources and documentation
- ESMA Decision (EU) 2018/1636: temporary retail CFD restrictions
The historical ESMA decision renewed a temporary retail-CFD restriction model that included account-based margin close-out protection.
- KNF Decision No. DAS.456.2.2019 of 1 August 2019
The Polish decision defines initial-margin and account-based close-out requirements for retail CFDs, with separate conditions for experienced retail clients.
Document read:
The example illustrates the mechanism. Check current account conditions and instrument specifications with the provider.