Crypto glossary
Crypto CFD (contract for difference)
A crypto CFD is a leveraged contract with a broker that pays the difference in a cryptocurrency's price between opening and closing, without owning the coin.
With a contract for difference, the client and the broker agree to exchange the change in price of an asset over the life of the trade. The client never holds bitcoin or any other coin, cannot withdraw it to a wallet and cannot use it on-chain; the position exists only on the broker's books. CFDs allow long and short positions with leverage and usually carry overnight financing charges.
Online brokers in Europe, the UK, Australia and elsewhere offer crypto CFDs alongside forex, indices and shares, and much of the advertising aimed at retail investors promoting crypto trading is in fact for CFDs. They are not available to US retail clients.
The broker is typically the counterparty, so clients face both market risk and the broker's own conflicts and solvency. ESMA rules cap retail leverage on crypto CFDs at 2:1 in the EU and require negative balance protection and risk warnings, which regularly show that most retail accounts lose money. The UK banned crypto CFDs for retail clients in 2021.
Example
A client in Spain opens a 1,000 euro long bitcoin CFD with 2:1 leverage at a regulated broker; when bitcoin rises 5 percent the position gains about 100 euros, minus spread and overnight fees, but no BTC ever changes hands.