What a CFD is
A CFD is a contract on a price difference. The UK Financial Conduct Authority (FCA) describes CFDs as complex, leveraged derivatives that are typically offered to retail clients through online trading platforms. In another consumer notice the FCA explains that they let you speculate on the price of an asset. The underlying can be a currency pair, an index, a commodity, a share or a cryptocurrency. Profit or loss is set by the price change from opening to closing, plus costs. Because it is a derivative contract on the price, it is a different product from buying the share or the asset itself.
Leverage and margin
With a CFD you do not pay the full value of the position. You deposit margin, collateral worth a fraction of that value. The FCA warns that leverage multiplies both losses and profits, can have a large effect on fees, and puts you at risk of losing more than your initial investment. In the European Union, ESMA limited the leverage retail clients can use to open a position: 30:1 for major currency pairs, 20:1 for non-major pairs, gold and major indices, 10:1 for commodities other than gold and non-major indices, 5:1 for individual shares and 2:1 for cryptocurrencies. ESMA's explanatory document translates this, for example, into initial margin of 20% of the contract value when the underlying is a share.
Forced close-out at 50% of margin
One of ESMA's rules is a margin close-out on a per-account basis. The provider must close one or more of a retail client's positions when the funds in the account fall to 50% of the required initial margin. ESMA explains that too low a level exposes investors to losing more than they invested, especially in a price gap, while too high a level would cause frequent close-outs. ESMA also lets a provider apply the rule to each position separately. The FCA adopted a similar rule in the UK: closing positions when funds fall to 50% of the margin needed to keep them open.
Negative balance protection
Under ESMA's intervention measures, a retail client's total liability for all CFDs in an account is limited to the funds in that account. ESMA explains that the goal is for the maximum loss from CFD trading, including all costs, not to exceed the money in the CFD account, with no further liability. The client's other accounts are not part of the capital at risk. The FCA set a similar protection: a client cannot lose more than the total funds in the trading account. Note that these are EU and UK rules for retail clients. A provider operating under a different regulator is not necessarily bound by them, so check what applies to your account.
Costs: spread, commission and overnight funding
The most visible CFD cost is the spread between the buy and sell price, and sometimes a commission. In a review published in November 2025, the FCA notes that overnight funding charges can be a substantial ongoing cost for clients who hold positions for longer, and that it found wide differences in the effective interest rates clients pay. The FCA asks providers to consider all charges, not only the cost of execution. So before opening a position, check the spread, the commission and the overnight charge for the specific instrument, and work out what it would cost to hold it for several days or weeks.
The risk warning regulators require
In the EU and the UK a CFD provider must attach a risk warning to any communication aimed at retail clients. According to ESMA, the warning states the percentage of that provider's retail accounts that lost money over the last 12 months, recalculated every quarter and including all fees and charges. A new provider with no data uses a standard warning with the range national regulators found: 74% to 89% of retail investor accounts lose money when trading CFDs. ESMA's measures applied from 1 August 2018, and the FCA's rules from 1 August 2019. CFD trading is leveraged and can lead to rapid loss of the money you deposited.
Can I lose more than I deposited with a CFD?
The FCA warns that leverage can put you at risk of losing more than your initial investment. In the EU and the UK, retail clients have negative balance protection, but this depends on the regulation that applies to the provider.
What is the maximum leverage for a retail client in the EU?
According to ESMA, from 30:1 for major currency pairs down to 2:1 for cryptocurrencies. For individual shares the cap is 5:1.
What is overnight funding?
A charge a CFD provider applies for holding an open position beyond the day. The FCA notes that it can be a substantial ongoing cost when positions are held for longer.
Where does the percentage in the risk warning come from?
According to ESMA, each provider calculates every quarter the percentage of its retail accounts that lost money over the last 12 months. A new provider shows the 74% to 89% range.
This information is for learning and comparison, not investment advice. Verify product details and eligibility conditions against the current source.
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