LEARN TO TRADE · Beginner · 7 min read · 3 Nov 2026 · Navion Pro Research
What Is a CFD, and What Are You Actually Trading?
A CFD lets you trade on a price without owning the thing behind it. This guide explains what that means, how a CFD trade works from start to finish, and what to understand before you place your first one.
Trading leveraged products carries a high level of risk to your capital. Losses can exceed deposits. Past performance is not an indicator of future results.
Key Points
- A CFD is a contract between you and a provider to exchange the difference in an asset's price between when you open a trade and when you close it.
- You never own the asset. You trade on its price moving up or down.
- CFDs use leverage, so a small deposit controls a larger position. That magnifies losses as well as gains.
- The main costs are the spread and a commission, plus an overnight charge if you hold a position past the daily cut off.
CFDs in plain terms
CFD stands for contract for difference. The name describes exactly what it is: a contract between you and a provider to settle the difference in price.
Imagine you and a friend agree on the price of a laptop today. If the price rises by next month, your friend pays you the difference. If it falls, you pay your friend. Neither of you buys the laptop. You are only settling up on the change in its price.
A CFD works the same way, with a share, a currency pair, gold or an index in place of the laptop. When you close the trade, the difference between your opening and closing price is paid to you or taken from you.
How a CFD trade works, step by step
The figures below are an example only. They are not real prices and do not reflect our margin rates.
Going long: trading on a rise. A trader thinks a company's shares will rise. The shares trade at $100.
- They buy 10 share CFDs at $100. The position is worth $1,000.
- At 5 times leverage, they put up 1/5 of that as margin: $200.
- The share price rises to $105, and they close the trade. The gain is 10 × $5 = $50, a quarter of the margin they put up.
- If the price had fallen to $95 instead, the loss would have been the same $50.
Going short: trading on a fall. Another trader thinks the same shares will fall.
- They sell 10 share CFDs at $100.
- The price falls to $95, and they close the trade by buying back at $95. The gain is 10 × $5 = $50.
- If the price had risen to $105 instead, they would have lost $50.
What the trade costs. The spread is the gap between the buy and sell price, and it is paid when the trade opens. If the position is still open at the daily cut off, an overnight financing charge, called a swap, applies for each night it is held. A commission is also charged on each trade. Spreads and swap rates change with market conditions, so check the current figures on the platform before you trade.
A 5% move in the share price meant a 25% gain or loss on the margin. That is leverage at work, and it cuts both ways.
What you are trading, and what you are not
| Owning the asset | Trading a CFD on it |
|---|---|
| You own it outright | You own a contract on its price, not the asset |
| You usually profit only if the price rises | You can trade on the price rising or falling |
| You pay the full price up front | You put up a fraction of the value as margin |
| Owning shares can come with voting rights | A CFD carries no voting rights |
| Your main cost is the purchase price | Your costs are the spread, a commission and any overnight charges |
The price of a CFD follows the price of the market behind it. If gold rises 1%, a gold CFD rises by about the same amount, before costs.
Six terms you will see on every trade
| Term | What it means |
|---|---|
| Spread | The gap between the buy and sell price. It is the main cost of opening a trade. |
| Margin | The amount set aside from your account to open and hold a position. |
| Leverage | How many times larger your position is than your margin. At 10 times leverage, $100 of margin controls a $1,000 position. |
| Lot | The standard unit of trade size. For gold, 1 lot is 100 troy ounces, and the smallest trade is 0.01 lot. |
| Long and short | Long means trading on a price rising. Short means trading on a price falling. |
| Swap | The overnight financing charge on a position held past the daily cut off. |
Benefits and risks
| Benefits | Risks |
|---|---|
| Trade on prices rising or falling | Losses can build as fast as gains, in either direction |
| A small deposit controls a larger position | Leverage magnifies losses, and you can lose your whole margin quickly |
| Many markets from one account | Prices can gap, so a stop loss may close at a worse price than set |
| No need to store or hold the asset | Overnight charges add up on positions held for a long time |
What you can trade with CFDs
At Navion Pro, CFDs are available across six types of market:
- Forex. Currency pairs such as EUR/USD, where you trade one currency against another.
- Global stocks. Shares in large companies listed around the world.
- Global indices. A whole stock market in one trade, such as the S&P 500.
- Commodities. Gold, silver, oil and other raw materials.
- Bonds. Government bonds, whose prices move with interest rates.
- Crypto. Bitcoin and other cryptocurrencies, traded on price without holding a wallet.
Before your first CFD trade: a seven point routine
- Practise on a demo account. Place trades with virtual money until the process feels familiar.
- Pick one market to start with. Learn what moves it before adding another.
- Check the current costs. Look at the spread and swap rate on the platform.
- Check your margin and leverage. Know how much margin the trade needs, and what a 1% move would mean for it.
- Size the position. Work out how much you could lose if the trade goes against you, and keep it to a level you can accept.
- Set a stop loss before you open. Decide where you will exit if the price moves against you.
- Review the trade once it is closed. Note why you opened it, what happened and what you would change.
Risk disclosure: Trading involves significant risk of loss and is not suitable for all investors. Past performance is not indicative of future results. This brief is for information and education only. It is not investment advice, a recommendation or an instruction to buy or sell anything. The likely market reactions described here are our assessments of what could happen, not predictions, and markets can and often do move differently. Figures and forecasts come from third party sources and may change. Make your own decisions, and consider independent advice if you are unsure.
