eToro's trading platform offers a great avenue to familiarize yourself into the concept of CFD trading. Built with customized interface that is user-friendly and innovative features, eToro makes life easier for any traders wanting to dive deep into learning the in's and out of CFD trading.

Offering a variety of options to traders that would have not been possible using traditional investing methods, eToro is a multi-asset broker that also offers trading opportunities for stocks, cryptocurrencies, currency pairs aside from CFDs. Read on to know more about this method of investing and continue to read our complete evaluation of eToro to know the results of our review.

Trade CFDs with eToro right now. Get started by opening first an account.

78% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

Understanding Contracts for Difference or CFD Trading

In finance, CFD means "contracts for differences", an agreement on a futures contract where the differences in the value from buying and selling of a financial instrument, is made through monetary payments as opposed to the delivery of securities or physical goods.

Simply put: CFD involves a trading engaging in a contract with a CFD broker, instead of buying an underlying asset directly.

CFDs assures that even in small investments, there is a possibility of achieving yields equal to the underlying asset or market.

Key Points of CFD Trading

  • CFDs permits the trader to exchange the difference in value of an investment product during the time between opening and closing a contract without having to claim ownership of the actual underlying security.

  • CFDs are a top choice of day traders who maximizes the strategy of leverage when trading assets that are usually more expensive to buy and sell.

  • With all its benefits and advantages, CFD also comes with a risk to lesser industry regulation, the possibility of liquidity and the requirement to maintain enough margin to offset potential leveraged losses.

Remember: If you are a trader only looking to simply trade shares of invest your money on an index fund, CFDs may become too complex for you. However, if you want to apply advanced investing strategies such as using leverage trading and short-selling, then you might want to learn more about CFD trading.

Why Trade CFDs?

Trading via CFD gives traders greater exposure while using lesser capital. It also provides traders the opportunity to capitalize on market movements and the ability to trade a wide variety of markets and assets.

The last decade has seen traders opting to trade via CFDs when trading stocks, commodities, indices and currencies because of the flexibility it brings as compared to the more complex world of traditional trading. CFD trading also paves better access to leveraged trading, foreign markets, short selling and fractional shares.

But wait, what are fractional shares?
Fractional shares are part or a fraction of a share. With CFD, you don't have to buy the whole value of a financial instrument. Instead you can buy a literal share of a stock.

For example:
If Apple's stock is valued at $1,000, on eToro you can opt to invest a $50 Apple stock with 1:10 leverage, making you hold a stock of Apple valued at $500, which amounts to half of the total share of Apple in your portfolio.

Assets You Can Trade on eToro via CFD

The assets a trader can trade through CFD in eToro are currencies, stocks, indices, cryptocurrencies and commodities. On the asset's trading page or window, you will see a "CFD" label for the Buy or Sell position.

For assets that only allow CFD trading for Sell positions, you should be able to see a "CFD Trade" label on the asset's Sell trading window.

CFD label on eToro's AstraZeneca's Buy trading window
CFD label on eToro's AstraZeneca's Buy trading window

Is CFD Trading Allowed All Over the World?

In most countries, CFD trading is allowed except for the United States and Hong Kong. Due to SEC regulations in the United States stating that it goes against US securities law, CFD trading is not available for US traders.

Therefore, users of eToro residing in the United States or those accounts under eToro USA are not allowed to do CFD trading.

CFD trading is not available for eToro USA clients
CFD trading is not available for eToro USA clients

CFD Trading Compared with Other Financial Instruments

Traders can in fact speculate on several financial instruments in the market. However, while CFD trading is almost similar to futures and options market, there are some differences such as:

  • CFDs have no expiration date.
  • CFD trading is normally done over-the-counter between traders and CFD brokers.
  • Because minimum contract sizes are smaller, it is possible for traders to buy a single share CFD.
  • A CFD contract is one-to-one with an underlying financial instrument.
  • With CFDs, it is easier to create new instruments because it is not restricted by any jurisdiction boundaries nor any exchange definitions.

Is CFD Trading on eToro Safe?

Yes. Since eToro follows the regulations set by tier-1 financial regulators such as the CySEC, ASIC, FinCen and FCA, the funds of eToro users are safely secured at leading and trusted banks while any personal information is protected under an SSL certificate.

Remember: eToro offers CFD trading in several countries such as the United Kingdom, France, Australia, Spain, Italy, Germany but not in the United States and Hong Kong due to existing conflict with current financial securities law.

Risk of CFD Trading

CFD trading also comes with its own set of risk, otherwise everyone would have gotten rich because of CFD trading. The challenge to having a successful strategy in CFD trading is to understand its various complexities and to also have a wide knowledge about the financial market.

For example:
In CFD trading, traders can lose more than they originally invested. Because of the use of leverage, CFD trading is seen as riskier than traditional trading.

In CFD trading, traders are required only with a small amount of trade value, normally 5%. If the trade heads to a favorable direction, traders will then earn 100% profit. However, if the trade goes the other way, traders can potentially lose 100% of the total trade value.

How to Lessen the Risks of Trading CFDs on eToro

  1. Practice with eToro's demo account. eToro gives users a virtual money of $100,000 for them to play around and practice doing all kinds of trading strategies. This is one way to immerse yourself well in the world of CFD trading before you start trading using your actual money.
    eToro web-based platform in Virtual Portfolio mode
    eToro web-based platform in Virtual Portfolio mode
  2. Research, research and research. Need we say more? The more you read about the topic of CFD trading and learn from advices from expert traders, the more ready you become once you start investing real money on CFD. You can also explore the eToro Trading Academy which has lots of information regarding CFDs.
    eToro trading academy
    eToro trading academy
  3. Start small and maximize using the Stop-Loss tool. Using the Stop-Loss feature of eToro allow you to minimize risk by putting a cap on your losses at a certain amount. Starting small is a great way to get comfortable with CFD trading with leverage.
    CFD trade parameters on the eToro platform
    CFD trade parameters on the eToro platform

How to Trade CFDs on eToro?

  1. Open the eToro platform and select an asset offered as CFD. This could be an index, stock, currency, commodity or any other asset.
    eToro trading platform
    eToro trading platform
  2. Next, open a position and the set conditions like either a short or open position, leverage value, and amount to be invested.
    Crude oil CFD trading on eToro
    Crude oil CFD trading on eToro
  3. You and eToro then agree on a contract such as the opening value of the position, as well as whether it'll consume overnight fees and other fees.
    Crude oil overnight refund details on eToro
    Crude oil overnight refund details on eToro
  4. The position is opened until you close it or by the auto-close command caused by the Stop Loss or Take Profit provisions of the contract.

  5. If the CFD position closes in your favor, you get a return from eToro, while if the position closes at a loss, you will pay the broker the difference in value.

Ready to trade CFDs with eToro? You can open an account here.

eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFDs.

Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 78% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

Past performance is not an indication of future results. Trading history presented is less than 5 complete years and may not suffice as basis for investment decision.

Copy trading is a portfolio management service, provided by eToro (Europe) Ltd., which is authorised and regulated by the Cyprus Securities and Exchange Commission.

Cryptoasset investing is unregulated in some EU countries and the UK. No consumer protection. Your capital is at risk.

eToro USA LLC does not offer CFDs and makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared by our partner utilizing publicly available non-entity specific information about eToro.

VISIT ETORO 78% of retail CFD accounts lose money