Contracts for difference definition

A - B - C - D - E - F - G - H - I - L - M - N - O - P - Q - R - S - T - U - V - W - Y

See all glossary trading terms

Contracts for difference

Contracts for difference (CFDs) are a type of financial derivative used in CFD trading.

They can be used to trade a variety of financial markets like shares, forex, commodities, indices or bonds. CFDs are traded in contracts: you take out a certain number of contracts, and each is equal to a base amount of the underlying asset. One contract is equal to a trade of £10 per point on the FTSE, for example.

CFD trading

CFD trading is the speculation on financial markets via CFDs, a form of financial derivative

A CFD is an agreement between two parties to exchange the difference in price of an asset from when the position is opened to when it is closed. CFDs allow investors to trade market volatility across several asset classes without the need to own the underlying asset. That also means that assets can be both bought (going long) or sold (going short), and profits can be made from both bull and bear markets: though losses can be incurred also.

CFDs are traded on leverage, which means that all trades have magnified profits and losses

CFD example

You open a long CFD position on Lloyds Banking Group when it is trading at 80p a share, buying 10,000 shares of Lloyds Banking Group as a CFD. Lloyds Banking Group shares then increase to 85p. You close the position by selling a CFD of 10,000 Lloyds shares, realising a profit of £500.

If the market had instead dropped to 75p and you closed your position, you would realise a loss of £500.

Visit our CFD trading section

Find out more about CFD trading with IG.

Help and support

Get answers about your account or our services.

Get answers

Or ask about opening an account on 0800 195 3100 or

We're here 24hrs a day from 8am Saturday to 10pm Friday.

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.