What Is CFD Trading
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A contract for difference, or CFD, is an agreement between a client and a provider to exchange the difference between a market's price when a position opens and its price when the position closes, multiplied by the position size. You never own the underlying asset. A share CFD puts no shares in your name, a commodity CFD delivers nothing physical, and the contract settles in cash.
CFDs are also leveraged: you post a fraction of a position's full value as collateral, called margin, and the provider calculates profit and loss on the full value. Leverage scales losses at the same rate as gains, which is why the FCA restricts how providers offer CFDs to retail clients and requires each to publish the share of its own retail accounts that lose money.
Capital.com is the featured provider in this guide: its current UK retail terms supply the provider-specific figures below, and its standard risk warning appears in full at the end.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 65% 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.
What a CFD changes, and what it does not
Buying a share makes you a part-owner: you sit on the register, can vote, and receive dividends as an owner. A CFD replaces all of that with a private contract to settle the difference between the opening and closing price on your chosen position size. No asset changes hands at any point.
Direction is the client's choice. A long position gains when the market rises and loses when it falls. A short position gains when the market falls and loses when it rises. Before costs, the result of either equals the price movement multiplied by the position size, so a CFD account can lose money in a rising market as readily as in a falling one.
Share CFD positions can receive a dividend adjustment, an amount the provider applies under the contract when the underlying company pays a dividend; the position's direction and the provider's terms determine how it applies. It is not an ordinary dividend paid to an owner, because a CFD holder is not a shareholder.
The structure also explains why anyone holds a contract instead of the asset: short exposure without owning anything to sell first, and a larger notional exposure than the cash posted. The same features generate the risk: losses track the full exposure in either direction. Contract specifications differ by provider and by market, so the live instrument specification, not a general article, defines the terms of any particular CFD.
Margin, notional exposure, and account equity
Three numbers run every CFD account, and they are not interchangeable. Notional exposure is the full value of a position: units multiplied by price. Initial margin is the collateral the provider requires to open the position, set as a fraction of that exposure. Account equity is what the account is worth now: cash adjusted for the unrealised results of every open position.
For UK retail clients, the FCA sets initial margin requirements corresponding to leverage limits from 30:1 to 5:1 by asset class, under its conduct rules for retail CFD business. The limit caps how much exposure a given amount of margin can open; profit and loss still come from the full exposure.
That is why margin is collateral rather than a cap on loss. A position can lose more than its initial margin while it stays open, provided the account holds enough equity to support it. Two account-level rules, not the margin figure, set the boundaries.
The first is the FCA's closeout rule. A provider must close one or more open CFD positions as soon as market conditions allow when net equity in a retail client's CFD account falls below 50% of the total initial margin required for all open positions in that account. The rule reads the whole account: other positions, realised results, deposits, and withdrawals feed the calculation, so which position closes, and when, depends on the account's state, not on any single trade.
Providers can run their own margin-call processes alongside the rule, and Capital.com publishes how its process works. A client cannot rely on receiving or acting on a notification before the account-level closeout rule applies: prices can pass through notification levels faster than a response can happen, and the closeout obligation stands whether or not a message arrived.
The second rule is negative balance protection. Negative balance protection limits a UK retail client's liability to the funds in the account, even if the account temporarily shows a negative balance. The full account balance remains at risk. That is protection against owing the provider money afterwards, not against losing everything the account holds.
Go long for a rise or short for a fall. No underlying asset changes hands.
Margin is collateral for a larger notional exposure, not a loss cap.
Profit or loss follows the full position size in either direction.
The provider and client exchange the opening-to-closing difference.
Hold those layers apart in the worked example that follows. Margin opens the position, exposure drives the profit and loss, and equity against required margin decides how long the position stays open.
A worked share CFD example
Take a fictional UK share trading at GBP 2.00 and a client who opens a long CFD position of 1,000 units. The notional exposure is GBP 2,000. At an illustrative retail leverage of 5:1, within the FCA's range, the provider requires GBP 400 of initial margin. Assume this GBP 400 is also the client's entire account equity, no other positions are open, and nothing else changes the account.
If the price rises to GBP 2.20, the position shows a gross gain of GBP 200: a GBP 0.20 move multiplied by 1,000 units. If the price falls to GBP 1.80, it shows a gross loss of GBP 200 on the same arithmetic. Both figures come before the spread, overnight funding, currency conversion, any dividend adjustment, any guaranteed-stop fee, and tax where it applies. A 10% market move produced a 50% move in the client's equity: the effect of 5:1 leverage.
The adverse case halves the equity and reaches the closeout threshold. A GBP 200 unrealised loss leaves GBP 200 of equity against GBP 400 of required initial margin. Equity now equals the 50% threshold. Below that threshold, the FCA rule requires the provider to close positions as soon as market conditions allow. It does not guarantee closure at GBP 200 equity: execution and further movement determine the final realised result.
The example does not establish GBP 400 as the position's maximum loss. Margin measures what the position cost to open; negative balance protection applies to the whole account, not to the initial margin of one position, and a position supported by sufficient equity can keep losing beyond its original margin figure while it stays open.
1,000 share CFDs at GBP 2.00 each.
20% margin under the stated example assumptions.
Gross result before spreads, funding, conversion, and other applicable costs.
The loss follows notional exposure, not just initial margin.
Live accounts rarely match these clean assumptions. Several positions share one equity pool, realised results shift the base, and margin requirements differ by market; because the rule reads the account as a whole, a losing position in one market can trigger the closure of a position in another.
Why a new position often opens at a loss
Every CFD market carries two prices: a higher one at which clients buy and a lower one at which clients sell. The gap between them is the spread. A long position opens at the buy price and is valued, from the first moment, at the sell price, so it begins with a mark-to-market loss equal to the spread multiplied by the position size. The market has not moved; the client has paid the spread to enter.
Break-even follows from the same structure. The market must move in the client's favour by at least the spread before the gross result reaches zero, and further before it covers financing, conversion, and any other accrued cost. Whatever the spread is at the moment of the trade, it is the first cost paid and the first hurdle cleared.
Providers advertise headline minimum spreads. A minimum is not an average, and spreads can widen. The spread that shapes a result is the one in force when the position opens, another reason the live quote outranks a marketing table.
The full CFD cost stack
The spread is the first layer of a stack, not the whole of it. A separate dealing commission forms a second layer at some providers, on some markets, or on some account types, charged on top of the spread where it applies.
Overnight financing is the third layer. Relevant cash CFD positions held past the provider's daily cut-off incur an overnight adjustment, set by the provider's method, the instrument, and the direction of the position. A position held for weeks collects a daily amount every night, so financing can make a longer holding period more expensive than the entry costs suggest; whether a given holding period makes sense depends on the product's terms and the client's circumstances.
Currency conversion is the fourth layer, and a GBP-denominated account does not switch it off. When an instrument's currency differs from the account's, conversion and a mark-up may apply under the provider's account terms. A GBP account does not automatically remove conversion on non-GBP instruments; the account structure and settlement rules determine when a conversion occurs.
A guaranteed-stop fee forms the fifth layer when an attached guaranteed stop triggers; a later section covers that order type.
Capital.com's current terms show how the layers combine. Capital.com charges no separate dealing commission (Other fees apply). Spreads still apply on every market, relevant positions held past the daily cut-off incur overnight funding, currency conversion carries a 0.7% mark-up for retail clients where it applies, and a guaranteed-stop fee applies when a guaranteed stop triggers. For index positions, the overnight adjustment includes a platform component of 4% a year, divided into a daily amount, alongside the benchmark component. The formula varies by instrument and direction. Capital.com's fees page states that conversion can apply to realised profit and loss, overnight adjustments, guaranteed-stop fees, dividend adjustments, and standalone conversion transactions, so a GBP account trading non-GBP markets meets the mark-up in several places.
The useful comparison is never spread against commission alone: it is spread, any separate dealing commission, overnight financing, currency conversion, market data where charged, and any guaranteed-stop premium, taken together across the markets and holding periods you intend.
Difference between the buy and sell price.
A separate dealing commission can apply on some markets.
Relevant positions held past the cut-off accrue an adjustment.
Can apply when the instrument and account currencies differ.
A premium can apply under the provider's terms; charging and refund timing vary.
Costs also feed the leverage arithmetic: every layer settles against account equity, the pool the closeout rule measures against required margin, so a position paying nightly financing sits closer to the 50% threshold before the market moves at all.
Long and short positions
The contract is symmetrical, and so is the risk. A short position profits from a falling market and loses from a rising one, calculated on the same full notional exposure and governed by the same account-level closeout rule. Selling first does not shrink the downside: a market rising against a short position generates losses at the same rate a falling market generates them against a long.
Direction also reaches the cost stack: the instrument and the direction feed the overnight calculation, and dividend adjustments on share CFDs apply according to the position held and the provider's terms, so a long and a short on the same market can carry different costs.
Stops, gaps, and margin closeout
A standard stop order instructs the provider to close the position after the market reaches the stop level; it does not fix the exit price. When a market gaps to a distant price without trading in between, or moves fast, the order executes at the next available price. The difference between the stop level and the executed price is slippage, and in a sharp move it can form a large part of the loss. A standard stop is a plan for an exit, not a guarantee of one.
Capital.com offers a guaranteed stop that closes the position at the selected level if it triggers, under the provider's terms, and charges a premium only when it triggers; the deal ticket shows the amount before submission. It can manage gap risk, but it does not make a leveraged position low risk and does not prevent loss: the position still loses the full distance to the guaranteed level, plus the premium and other applicable costs.
Neither order type overrides the FCA's closeout rule, which acts on account equity against required margin whether or not any stop exists. An account running low on equity can see a position closed under margin rules before the market reaches a more distant stop, so a planned exit level does not control when a position can end.
What UK retail protections cover
The FCA rules used throughout form the retail baseline: initial margin requirements corresponding to leverage limits from 30:1 to 5:1 by asset class, the 50% account-level closeout obligation, negative balance protection on the account, and a standardised warning stating each provider's own retail loss percentage. Every FCA-regulated provider serving UK retail clients must apply them; they are the regulatory floor, not a selling point of any firm.
Each protection has edges: the leverage limits cap exposure per unit of margin without stopping a client committing the whole account as margin, the closeout rule fixes a threshold but not the execution price, and money added after losses joins the balance that can be lost.
The protections attach to retail status, so the professional-client boundary matters. Capital.com's professional clients do not receive negative balance protection, and professional clients may have more limited access to the Financial Ombudsman Service. In October 2025 the FCA warned about firms pressuring retail clients to opt up to professional status or move to offshore entities, steps that can remove these protections. Nothing in this article encourages an application for professional status.
UK tax treatment in outline
Tax on CFD results depends on individual circumstances and can change, so this section outlines HMRC's framework rather than any reader's position. For an individual retail client, CFD profits and losses normally fall within the capital gains regime, unless the activity forms part of a trade taxable as income. Where the capital gains regime applies, an allowable loss on a CFD may offset chargeable gains under the normal rules. And because the contract never involves buying the underlying security, opening a share CFD does not create stamp duty or stamp duty reserve tax on a securities purchase.
This guide leaves out current allowances, rates, and thresholds: they change, and applying them to a specific situation amounts to individual tax advice, which we do not give. Readers comparing wrappers can start with our guide to spread betting vs CFDs, which sets out how the two products differ, including how UK tax approaches each.
What to compare in a CFD provider
Fees, contracts, and platform terms vary by provider, so the definition of a CFD settles nothing about where to hold one. The comparison starts with the legal entity: the specific regulated company a client contracts with determines which rulebook applies and which complaints route exists, and a brand name is not an entity.
Total cost comes next, measured on the markets you intend to trade: live spreads rather than headline minimums, any separate dealing commission, the overnight financing method, the conversion mark-up and the items it touches, market data where charged, and the guaranteed-stop premium. Contract specification follows: margin requirements by market, the daily financing cut-off, and dividend-adjustment handling, all in the instrument specification rather than advertising.
Platform and stop terms complete the picture, along with how clearly the provider documents all of it: a client who cannot find the financing formula before opening an account will not find it easier mid-position. Our guide to the best CFD brokers in the UK applies these criteria across providers; whichever list you consult, each variable is checkable in public documents before any account exists.
Capital.com
This section sets out Capital.com's current UK retail terms as one case of the mechanics above. The UK entity is Capital Com (UK) Ltd, FCA reference 793714.
Capital.com lists a GBP 20 minimum deposit. That figure is an account-funding term and nothing else: it is not a safe or sensible trade size, and it is not a form of risk control. The leverage arithmetic from the worked example applies to a small balance exactly as to a large one.
Capital.com charges no separate dealing commission (Other fees apply), and the following qualifications belong next to that sentence: spreads on every trade, overnight funding on relevant positions held past the cut-off, currency conversion where currencies differ, and a guaranteed-stop fee when a guaranteed stop triggers. Capital.com also states that it charges no inactivity fee.
The current interfaces are Capital.com's web platform, mobile app, and TradingView integration. The company announced the refreshed app, platform presentation, and brand identity on 1 June 2026, after the updated mobile app became available globally from May 2026. The new look uses a palette Capital.com calls Midnight, Light, and Gold and a dot motif it calls the Lens. The platform lists thousands of UK CFD markets across forex, indices, shares, and commodities.
Capital Com (UK) Ltd also offers spread betting, available only for UK clients. This is a separate wrapper with its own terms; our Capital.com spread betting review covers that product so the two are not confused. To check any figure here against the live source, visit Capital.com and read the instrument specifications, fees page, and legal documents directly.
Frequently asked questions
What does CFD stand for?
Contract for difference. The contract obliges the client and the provider to exchange the difference between a market's price at the opening and the closing of a position, multiplied by the position size, settled in cash without ownership of the underlying asset.
Is CFD trading legal in the UK?
Yes. The FCA permits regulated providers to offer CFDs to UK retail clients under the restrictions described above: leverage limits by asset class, the 50% account-level closeout rule, negative balance protection, and standardised risk warnings.
Can a UK retail client lose more than the account balance?
No. Negative balance protection prevents CFD trading losses from exceeding the total funds in the retail CFD account. The full balance stays at risk, and a single position can lose more than its initial margin before the account-level rules intervene.
Is margin the maximum loss?
No. Margin is the collateral that opens a position; profit and loss run on the full notional exposure. The limits operate at account level: the closeout rule requires action as soon as market conditions allow when net equity falls below 50% of total required margin, and negative balance protection limits the client's liability to funds in the account.
Are CFD profits taxable in the UK?
For an individual retail client, results normally fall within the capital gains regime, unless the activity forms part of a trade taxable as income. Allowable losses may offset chargeable gains under the normal rules, and no stamp duty or stamp duty reserve tax arises because no security is purchased. Circumstances decide the outcome; this guide does not determine any reader's position.
What is the difference between a CFD and spread betting?
Both give leveraged exposure to a market's price without ownership, and Capital Com (UK) Ltd's standard risk warning covers both together. They are legally distinct wrappers; the comparison linked earlier sets out how they differ, including how UK tax approaches each.
Does Capital.com charge a separate dealing commission?
No, Capital.com charges no separate dealing commission (Other fees apply). Other costs remain: spreads on every trade, overnight funding on relevant positions held past the cut-off, currency conversion at a 0.7% retail mark-up where it applies, and a guaranteed-stop fee when a guaranteed stop triggers.
Can a stop guarantee the exit price?
A standard stop cannot: it closes at the next available price after the stop level is reached, so gaps and fast markets produce slippage. Capital.com's guaranteed stop closes at the selected level if it triggers under the provider's terms and charges a premium when it does. Neither order type overrides the account-level closeout rule, which can close a position before any stop level is reached.
Before you compare platforms
The mechanics reduce to four points. A CFD is a cash-settled contract with a provider on a price difference, with no ownership and no shareholder rights. Profit and loss run on the full notional exposure, so margin measures what a position costs to open, never the most it can lose. Costs arrive in layers, from the spread at the open through financing, conversion, and any guaranteed-stop premium, all settling against the equity the closeout rule watches. And a retail account that falls below half its required margin must have positions closed as soon as market conditions allow, whether or not a planned exit was reached.
The same mechanics draw the boundary of who the product does not suit. A reader who does not understand leverage and margin, who cannot afford to lose the full balance of a trading account, who wants ownership or shareholder rights, or who wants a low-maintenance long-term investment is describing something a CFD is not. Nothing in this guide recommends opening or funding an account; its job is to make the decision, either way, an informed one.
Capital.com key UK terms and the standard risk warning follow for reference.
FCA reference 793714
Other fees apply: spreads, overnight funding, 0.7% retail currency conversion where applicable, and a guaranteed-stop fee when triggered.
Any eventual decision, in either direction, rests on the current provider terms and the live instrument specification in force at the time, not on the snapshot this guide describes. This guide is educational and does not assess whether a CFD suits any individual reader's circumstances.
Advertisement Feature. Capital.com paid for placement as the featured provider. MatchMyBroker may receive compensation if you use an affiliate link. This content is for information and does not assess your personal circumstances.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 65% 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.
