Economically, a CFD is an agreement between a buyer and a seller to exchange the difference between the current price of an underlying asset and its price when the contract is closed. They are a form of derivative trading. You do not need to own the underlying asset. This means you can lose money very rapidly. Leverage can contribute to losses being so rapid that people have ended up owing large sums of money to the product provider. As a result of this event, in the absence of Negative Balance Protection, some retail investors ended up owing very large sums of money to providers, often much more money than the investors could afford. From this point of view, CFDs can be perceived as flexible financial derivatives, suitable to give exposure to a variety of different underlying instruments: Broadly, there are the following CFD classes, defined at the type of underlying level: If the difference is positive, the CFD provider pays the investor, in turn, if the difference is negative, the investor must pay the CFD provider. CFDs might seem similar to mainstream investments such as shares, but they are very different as the investors never actually buy, trade or own the asset underlying the CFD.
If you're a beginner, it's better to stay away. For example, when you want to bet on the increase of the oil price, you chose an oil CFD. When the price of the oil increases one percent, the price of the CFD will also increase one percent, so you will gain the price difference of the crude oil. Hence the name:
How do you determine your Share CFD quotes? IBKR does not widen the spread or hold positions against you. Can I see my limit orders reflected on the exchange? This also means that you can place orders to buy the CFD at the underlying bid and sell at the offer.
CFDs or Real Stocks on Etoro?