What is a CFD? How contracts for difference work, and the risks
By SendPay Business · · 2 min read
A CFD, or contract for difference, is a deal with a broker to exchange the difference in an asset's price between when you open and close the position. You never own the currency, share or coin; you only gain or lose on its price moving.
How a CFD trade works
- You pick an asset, such as the EUR/USD currency pair, and bet on it rising (going long) or falling (going short).
- You put down a deposit, called margin, which is only a fraction of the position's full size.
- When you close the position, the broker pays you the price difference if you were right, or you pay it if you were wrong.
- Holding a position overnight usually costs a daily financing charge.
Leverage cuts both ways
Because margin is only a fraction of the position, small price moves become big gains or losses compared with the money put in. In the UK, the FCA caps leverage for retail clients, at 30 to 1 for major currency pairs and lower for more volatile assets, and requires brokers to show the percentage of their retail accounts that lose money. Those figures are usually well over half.
CFDs and the law
CFD brokers serving UK customers must be authorised by the FCA. CFDs are banned for retail customers in the US.
Where SendPay fits
SendPay does not offer CFDs, leverage or forex trading. SendPay platforms offer currency exchange between GBP, EUR and USD accounts, and crypto buy, sell and hold, at fees the owner sets.
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This guide is general information, not legal or financial advice. SendPay Business is a technology company, not a bank, and does not take deposits; regulated services on the platforms are provided by licensed partners. PayPal, Patreon and Substack are named as reference points only and are not affiliated with SendPay Business.