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What Is a Stock CFD

A stock CFD is a contract with your broker that follows one company's share price: you hold no share, only the difference between your opening and closing price, in money. This paper shows what the contract is, how it differs from the share itself, how a slice of the value is held as margin, what the nightly charge is and how it is worked out, and where the three lines that matter sit in a platform's Specification. After reading it you can open a stock CFD's Specification and read its size, its margin and its swap lines.

Difficulty
Intermediate
Reading time
5 min
Pages
8
Reviewed by
Saman Rahbar

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A stock CFD, in five lines

A stock CFD is a contract with your broker that follows one company's share price. CFD is short for contract for difference: what changes hands is the difference between the price you opened at and the price you closed at, in money. You hold no share and no vote. One lot is one share at most brokers, so 100 lots follow 100 shares. The broker holds a slice of the value as margin, meaning money set aside while the trade is open. The costs are the spread, which is the gap between the buying and the selling price, sometimes a commission, and a charge for each night the trade stays open.

A certificate and a contract

Picture a share certificate, the paper with a seal that says you own part of a company, and beside it a contract that follows its price. The certificate stays with whoever owns the share, at an exchange, with the vote and the dividend that come with it. The contract is a promise between you and your broker to pay the difference between two prices. A stock CFD is the right-hand paper. It moves with the left-hand one, and it is what sits in your account.

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