CFD Trading for Beginners UK
What are CFDs, how do they work, and should you trade them? Risks, regulation, and getting started.
What is a CFD?
A Contract for Difference is an agreement to exchange the difference in price of an asset between when you open and close the trade. You never own the actual asset — you're trading the price movement.
How CFDs Work
You think Tesla will go up. You open a CFD buy position. Tesla rises 5%. You close the position and pocket the 5% profit (minus spread/fees). If Tesla drops 5%, you lose 5%. Simple — except for leverage.
Leverage
CFDs are leveraged. UK regulation (FCA) caps leverage at:
- Stocks: 5:1 (20% margin)
- Forex: 30:1 (3.3% margin)
- Crypto: 2:1 (50% margin)
This means £1,000 can control £5,000 of stock. Profits AND losses are magnified.
Tax Treatment
CFD profits are subject to Capital Gains Tax (unlike spread betting which is tax-free). However, CFD losses can be offset against other capital gains — which spread betting losses cannot.
Risk Warning
76% of retail investor accounts lose money when trading CFDs. You should consider whether you can afford the high risk of losing your money. Never trade with money you can't afford to lose.