[Basics] [Basics] What is a CFD? Trading gold without buying gold

A CFD (contract for difference) is a contract where you exchange only the price difference without owning the underlying asset. Most gold (XAUUSD), Nasdaq index and oil trading on broker MT5 platforms is done with CFDs.

An example

• Expect gold to rise: buy XAUUSD, sell after it rises, and you receive the difference
• Expect it to fall: you can sell first. If it falls, the difference is your profit
• No gold bar changes hands. It's a contract between you and the broker

Key features

• Leverage: you post only part of the contract value (margin). Gains and losses are magnified tens or hundreds of times
• Both directions: trade rises and falls
• No expiry: unlike futures you can hold indefinitely, but swaps apply overnight
• Over-the-counter: the broker, not an exchange, quotes the price, so prices differ slightly between brokers

Gold CFD contract size (common example)

• At many brokers, 1 lot of XAUUSD = 100 ounces
• At 0.01 lot (the smallest size), a $1 move in gold = $1 profit or loss
• This varies by broker — check MT5 Market Watch → right-click the symbol → Specification

Be careful

• Because of leverage, money can disappear faster than you expect. Most brokers force-close positions when margin falls below a set level (stop-out)
• EU and UK regulators require brokers to warn that most retail investors lose money with CFDs — that's the "xx% of retail investor accounts lose money" line at the bottom of broker sites
• Since the broker sets the price, using a trustworthy broker matters