Market Basics
What is a CFD?
Contracts for difference explained in plain language: how prices, spreads and P&L work.
5 min read · Updated 21 October 2026
A contract for difference (CFD) is an agreement to exchange the difference in an asset's price between when you open and close a position. You don't own the underlying asset — you're speculating on its price movement.
Buy (long) and sell (short)
If you buy and the price rises, you make a profit; if it falls, you make a loss. If you sell and the price falls, you profit; if it rises, you lose. Either direction can lose money.
The spread
Every instrument has two prices: the bid (sell) and the ask (buy). The difference is the spread, and it's a cost you pay when you trade. That's why a position typically starts slightly negative.
Working out profit and loss
P&L = (closing price − opening price) × contract size × number of lots, for a buy. Overnight positions may incur swap charges, and some accounts charge commission. Our historical simulator on the Trade page shows each of these components separately.
This content is for education only and is not investment advice. Trading CFDs and FX on margin carries a high level of risk and may result in the loss of all of your invested capital. Ensure you understand the risks before trading.