LemonTrades
TL;DR
- A CFD (contract for difference) lets you bet on a price with a broker, using leverage, without owning the asset.
- CFD brokers in Europe and the UK have to publish how many accounts lose, and it’s usually well over half.
- CFDs aren’t allowed for retail traders in the US. Americans use futures, options or ETFs instead.
- LemonTrades tells you what moved gold, forex and indices, and why, within seconds, whatever you trade them with.
CFDs are one of the most popular ways to trade gold, forex and indices outside the US. Here’s what you’re actually buying.
How CFD trading works
- You open a contract with a broker on the price of something: gold, the S&P 500, EUR/USD or a stock.
- You put up a fraction of its value as margin. That’s the leverage.
- When you close, the broker pays you the difference if the price moved your way. If it didn’t, you pay.
You never own the gold or the stock. Your counterparty is usually the broker itself, which is one reason to choose a well-regulated one.
An example: gold
Say you buy one lot of gold (100 ounces) at 20:1 leverage. A 1% rise on a 100-ounce position makes you about 20% on your margin. A 5% fall wipes out your whole margin. That’s how quickly it works in both directions.
What CFDs cost
- The spread: the gap between the buy and sell price.
- Overnight financing: a daily fee for holding a position past the broker’s cutoff, which adds up over weeks.
- Commission, on some accounts and on stock CFDs.
Why most accounts lose
Regulators in the UK and EU limit retail leverage (30:1 on major currency pairs, 20:1 on gold and major indices, 2:1 on crypto) and make brokers publish the share of accounts that lose money, commonly around 70% or more. High leverage and steady costs are the main reasons.
Are CFDs legal in the US?
Not for retail traders. US rules don’t allow them to be sold to ordinary investors, so American traders use other tools. See trade XAU/USD in the USA and forex vs futures.
| CFD | Futures | ETF | |
|---|---|---|---|
| Available to US retail traders | No | Yes | Yes |
| Leverage | High | High | None, unless leveraged |
| Where it trades | With your broker | On an exchange | On an exchange |
| Holding costs | Overnight financing | Rolling contracts | A small yearly fee |
Try the idea with fake money first: our trade simulator uses live gold, forex and index prices.
Sources
- ESMA: limits on CFDs for retail clients
- FCA: restrictions on CFDs for retail customers
- CFTC: customer advisories
Education, not financial advice. CFDs are complex, and most retail accounts lose money. See our disclaimer.
