Glossary
CFD (contract for difference)
A contract with a broker that pays the difference between an asset's opening and closing price. You never own the asset itself.
A CFD (contract for difference) is an agreement with a broker to exchange the change in an asset's price. Gold, index and currency CFDs follow the underlying market, but you hold a contract with the broker, not the asset. Positions are opened on margin, so a small deposit controls a larger exposure.
Example
You buy a CFD on 10 ounces of gold at 4,000.0 and close it at 4,012.0. The difference is 12.0 USD per ounce, so the gross result is 12.0 × 10 = +120 USD. Spread, any commission and overnight swap are deducted from that. Had gold fallen to 3,988.0, the result would have been −120 USD before costs.
Why it matters
The broker sets the prices, costs and contract terms, and they differ between brokers. For retail clients in the EU, ESMA rules cap leverage, require a margin close-out at 50% of the minimum required margin and protect accounts from a negative balance. According to ESMA, most retail accounts trading CFDs lose money.