Most traders discover the real mechanics of CFDs the same way — they hold a position overnight, check their account the next morning, and notice a small deduction they never planned for. It seems minor. Then they calculate it across thirty nights on a leveraged position and realise the cost was silently eating their profit the entire time.

A CFD — Contract for Difference — is an agreement between a trader and a broker to exchange the difference in an asset's price from when the contract opens to when it closes. No shares change hands. No underlying asset is owned. The broker mirrors the position, and profit or loss is simply the price movement multiplied by the number of units held.

CONCEPTCFDs let traders access price movement with a fraction of the capital — but every day you hold, the clock on funding costs is ticking.
WARNINGLeverage amplifies losses exactly as it amplifies gains — a 5% move against a 20:1 leveraged position wipes 100% of the margin posted.
KEY IDEAThe spread, overnight funding, and currency conversion fees are the three cost layers every CFD trader must calculate before entering a position.

Take a practical example. A trader wants exposure to $10,000 worth of a share CFD. With 10:1 leverage, only $1,000 margin is required to open the position. The broker quotes a spread of 0.10% — that's $10 gone immediately on entry. If the position is held overnight, an overnight funding rate applies. A typical rate is approximately the benchmark cash rate plus 2.5% annually, divided by 365. At 7.5% annual, that's roughly $2.05 per night on a $10,000 exposure. Hold for twenty nights and the funding alone costs $41 — before accounting for any adverse price movement.

CFD Costs on $10,000 Position (7.5% p.a.)$0$20$40$60Day 1Day 10Day 20Day 30$10Spread (entry)Cumulative funding

The risk layer that surprises traders most is margin calls. If the position moves against you and your account equity falls below the broker's maintenance margin threshold, the broker closes the trade automatically — often at the worst possible moment. Understanding this mechanism fully is covered well in resources like Investopedia's CFD explainer, and the structural background of how CFDs developed historically is outlined on Wikipedia. For traders analysing overnight funding rate mechanics, Investopedia also breaks down how benchmark rates feed directly into daily holding costs.

Know your three costs before you size any CFD trade: the spread on entry, the daily funding charge multiplied by your intended holding period, and the distance to your margin call level.

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