How CFDs Work
When you open a CFD trade, you are entering a contract with your broker. You pick an asset (say, gold at $2,000 per ounce), decide on a direction (up or down), and choose your position size. When you close the trade, the difference between your opening price and closing price determines your profit or loss.
You never buy or sell the actual asset. No shares change hands. No gold is delivered. The contract is purely about the price movement.
Here is a simple example: you think Apple stock (currently at $175) will go up. You buy a CFD on Apple at $175. The price rises to $180, and you close the trade. Your profit is $5 per share, multiplied by however many shares your CFD represents. If the price dropped to $170 instead, you would lose $5 per share.
CFDs use leverage, which means you only need to put up a fraction of the total position value as margin. A 10:1 leverage ratio means a $1,000 deposit controls a$10,000 position. This makes CFDs capital-efficient but also increases the risk.
At LHFX: You can trade over 150 CFD instruments from a single MetaTrader 5 account. Forex, crypto, stocks, indices, and commodities, all with STP/ECN execution and raw spreads from 0.0 pips.
Going Long vs Short
One of the biggest advantages of CFDs is the ability to profit from falling prices, not just rising ones.
Going Long (Buy)
You expect the price to go up. You open a buy position and profit if the price rises above your entry point. If it falls, you lose.
Example: Buy gold CFD at $2,000. Price rises to $2,050. Profit: $50 per unit.
Going Short (Sell)
You expect the price to go down. You open a sell position and profit if the price falls below your entry point. If it rises, you lose.
Example: Sell gold CFD at $2,000. Price falls to $1,950. Profit: $50 per unit.
With traditional stock investing, you can only profit when prices go up. With CFDs, you have the flexibility to trade in both directions. This is particularly useful during market downturns or when you see a clear reason for a price drop.
CFDs vs Owning the Asset
Here is a side-by-side comparison of buying stock CFDs vs buying actual shares.
| Feature | Stock CFD | Physical Shares |
|---|---|---|
| Ownership | No ownership | You own the shares |
| Leverage | Yes, trade on margin | Full capital required |
| Short selling | Easy, just click sell | Complex, requires borrowing |
| Dividends | Dividend adjustments applied | Real dividends paid |
| Voting rights | No | Yes |
| Overnight fees | Yes, swap/financing charges | No |
| Markets available | Forex, stocks, crypto, commodities, indices | Stocks only |
CFDs are better suited for short-to-medium-term trading where you want flexibility and leverage. If your goal is to buy and hold for years and collect dividends, owning the actual shares is usually the better choice.
What Can You Trade as CFDs?
CFDs give you access to markets that would otherwise be difficult or expensive to trade. At LHFX, you can trade over 150 instruments from a single account.
Forex
Major, minor, and exotic currency pairs. EUR/USD, GBP/USD, USD/JPY, and dozens more. The most liquid CFD market in the world.
Cryptocurrencies
Bitcoin, Ethereum, and other major cryptocurrencies. Trade crypto price movements without setting up a crypto wallet.
Stocks
Trade price movements of individual companies like Apple, Tesla, and Amazon without the costs and complexity of owning shares.
Commodities
Gold, silver, crude oil, natural gas. Access commodity markets from the same platform you trade forex on.
Indices
Trade the overall direction of stock markets through index CFDs: S&P 500, NASDAQ 100, FTSE 100, DAX 40, and more. A single position gives you exposure to an entire market.
See all available instruments on the Account Types page.
Costs of CFD Trading
CFD trading involves two main costs. Understanding them helps you calculate whether a trade is worth taking.
The spread
The spread is the difference between the buy price and the sell price. If EUR/USD has a 0.2-pip spread, you start every trade 0.2 pips behind. At LHFX, raw spreads start from 0.0 pips on major pairs.
Commission
In addition to the spread, LHFX charges a flat $3 per side commission per standard lot. This covers both the opening and closing of the trade. For a mini lot (0.1), the commission is $0.60. For a micro lot (0.01), it is $0.06.
Overnight financing (swap)
If you hold a CFD position overnight, you will be charged (or credited) a swap fee. This reflects the cost of financing the leveraged portion of your trade. Swap rates vary by instrument and direction. Day traders who close positions before the daily rollover avoid this cost entirely.
For full pricing details, visit the Spreads & Fees page.
Benefits of CFD Trading
Leverage
Trade larger positions with less capital. At LHFX, forex CFDs offer leverage up to 1:500. This means a $200 deposit can control a $100,000 position. More details on the Leverage page.
Short selling made simple
Selling short with actual stocks requires borrowing shares, which is complex and sometimes restricted. With CFDs, you just click "sell." No borrowing. No special accounts. Same process as going long.
Diverse markets, one account
Trade forex, crypto, stocks, commodities, and indices from a single LHFX account. No need to open accounts with multiple brokers or exchanges.
No stamp duty (in most jurisdictions)
Because you do not own the underlying asset, CFD trades are typically exempt from stamp duty. Tax rules vary by country, so check with your local tax authority.
Hedging
If you hold a portfolio of stocks and are worried about a short-term decline, you can open a short CFD position on a stock index to offset potential losses. Hedging does not eliminate risk, but it can reduce your exposure to specific market moves.
Risks of CFD Trading
CFDs are powerful instruments, but they carry real risks. You need to understand these before you trade.
Leverage amplifies losses
The same leverage that multiplies your profits also multiplies your losses. A 2% move against your position with 50:1 leverage means a 100% loss of your margin. You can lose your entire deposit on a single trade if you are not careful.
Overnight financing adds up
Holding CFD positions for weeks or months incurs daily swap charges. These can erode profits over time, especially on larger positions. CFDs are generally more cost-effective for short-term trades than for long-term holds.
Market gaps
Prices can gap over weekends or during major news events. Your stop loss might not execute at the price you set if the market jumps past it. This is called slippage, and it can result in larger losses than planned.
Complexity
CFDs involve margin, leverage, swaps, and multiple asset classes. If you do not fully understand how these work together, you are more likely to make costly mistakes. Take the time to learn on a demo account before risking real money.
Risk disclosure: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Only trade with capital you can afford to lose.