What is a CFD?
A CFD (Contract for Difference) is a financial derivative that lets you speculate on the price movement of an asset — forex pair, stock, commodity, index — without owning the underlying. When you trade EUR/USD on eToro or Plus500, you are almost certainly trading a CFD, not spot forex.
The “difference” in the name: you enter a contract to exchange the difference between the opening and closing price of the position. If EUR/USD goes from 1.0850 to 1.0860 and you are long, you receive the 1-pip gain. If it goes to 1.0840, you pay the 1-pip loss.
CFD vs spot forex
| Aspect | CFD forex | Spot forex |
|---|---|---|
| Asset ownership | None — synthetic exposure only | Actual currency delivery (possible) |
| Regulated by | FCA/ESMA retail CFD rules | Depends on broker and jurisdiction |
| Leverage (UK) | 30:1 max (FCA) | 50:1 max (NFA) or higher |
| Negative balance protection | Mandatory for FCA/ESMA retail clients | Depends |
| Available to US residents | No — CFDs are not legal for US retail clients | Yes, via CFTC/NFA-registered RFEDs |
This is the critical US distinction: US retail clients cannot legally trade forex CFDs. US residents must use CFTC-registered brokers (OANDA, FOREX.com, Interactive Brokers) that offer spot forex — not the CFD version available to UK/EU/AU clients.
The CFD risk warning
The FCA and ESMA require all regulated brokers to display the percentage of retail CFD accounts that lose money. This ranges from 69% to 89% across major regulated brokers. The retail-loss rate is published by each broker in their regulatory disclosures and must appear on every commercial page.
The rate does not imply the product is rigged — it reflects the statistical outcome of most retail participants trading leveraged instruments without adequate risk management. It is a meaningful piece of data, not boilerplate.
See also: Leverage · Spread · ECN/STP/Market Maker