What is a CFD (contract for difference)?

A contract for difference (CFD) is a contract between you and a broker to exchange the difference in an asset's price between the moment a position is opened and the moment it is closed. If the difference is in your favour, the broker pays it to you; if it is against you, you pay it.

You never buy or hold the asset itself: no gold bars, no shares of an index, no coins in a crypto wallet. The CFD simply tracks the asset's price. That is what lets you open a position on a falling price as easily as on a rising one.

At NextTrade, forex, metals, energies and indices are all traded as CFDs. The price you see in the platform follows the price of the underlying market, plus the broker's spread.

1. You choose an instrument, for example gold (XAU/USD) or a stock index.
2. You decide the direction: buy (go long) or sell (go short).
3. You set the size, in lots or contracts, and the platform reserves the margin.
4. While the position is open, its profit or loss changes with every price move.
5. When you close it, the difference between the opening and closing prices, multiplied by the size, is added to or taken from your balance.

The calculation is the same for every CFD: (closing price − opening price) × size for a buy, and the reverse for a sell. Costs are then taken off the result, as described below.

CFDs exist on many kinds of asset. At NextTrade they cover forex pairs, metals, energies, indices and crypto. Each asset class has its own maximum leverage, because some markets usually move more than others.

CFDs are leveraged. To open a position you put up a margin, a fraction of the position's value, and gains and losses are calculated on the full position. NextTrade offers leverage of up to 1:1000; the leverage guide shows how the margin is calculated.

At NextTrade, a margin call occurs when your equity drops to 100% of your used margin. It is an alert only: it does not close positions. If the margin level falls to 50%, the stop out closes positions automatically, starting with the one with the largest loss. In fast markets, a stop out may not prevent larger losses.

Because you do not own the asset, a CFD carries no ownership rights, such as shareholder votes. It is a way to gain or lose from price changes, not a way to hold the asset.

Costs

• Spread: the difference between the buy and sell price, paid when you open a position.
• Commission: charged on some account types. At NextTrade, Raw accounts pay $7 per standard lot on forex, round trip (opening and closing).
• Swap: a charge or credit for each night a position stays open. Swap rates for each instrument are shown in the platform.

Risks

• Leverage: losses are calculated on the full position, so they can be large compared with the margin.
• Gaps and slippage: prices can jump past your order level, for example when the market reopens after the weekend.
• Costs add up: spreads and swap reduce every result, including losing trades.

NextTrade offers negative balance protection on all retail accounts, meaning clients cannot lose more than the funds available in their trading account. You can still lose all of those funds.