Finder makes money from featured partners, but editorial opinions are our own. Advertiser disclosure

CFD trading: US laws and alternative plays

Contracts for difference (CFDs) are a type of derivative not allowed for US residents. Here's why.

Belinda Punshon's headshot
Ryan Brinks's headshot

By

Belinda Punshon

&

Ryan Brinks

Updated

Fact checked

If you’re a global investor or international trader, you may have heard of contracts for difference (CFD) trading. CFDs exist across most of the world and are especially popular in Europe and Australia — but they’re not allowed in a few places, most notably the United States and Hong Kong.

What is a CFD?

A contract for difference is an agreement based on an underlying asset or financial instrument, such as a stock, commodity or currency pair. The buyer of the contract believes the underlying asset will increase in value from the time the contract is initially opened to when it is closed, while the seller of the contract believes the underlying asset will decrease in value.
At no point do the contract buyers own or have an obligation to own the underlying asset itself, nor are they trading the underlying asset. Because they’re only trading a contract, CFD traders can profit regardless of whether prices are going up or down. For that reason, CFD trading often becomes more popular during times of market volatility, as traders seek to profit by “shorting” the market when it falls.
While CFDs can be profitable, they’re also highly risky, complex products that are suited to more experienced traders.

Why are CFDs illegal in the US?

There are CFDs on US stocks and US stock market indices, but US residents generally cannot open CFD trading accounts due to government regulations. CFDs are considered unregulated over-the-counter products because they can be traded by any two willing parties on any marketplace that allows them. They’re not listed on any regulated exchange, and the SEC and CFTC haven’t allowed them to be listed on any regulated exchange due to their high risks.

Who is most likely to be researching CFD trading?

Finder data suggests that men aged 35-44 are most likely to be researching this topic.

Response
Male (%)
Female (%)
65+3.03%
55-648.54%4.41%
45-5412.26%3.17%
35-4420.52%3.86%
25-3419.28%4.41%
18-2417.36%3.17%
Source: Finder sample of 726 visitors using demographics data from Google Analytics

What are the risks?

CFDs are extremely risky products for the following reasons:

  • Leveraged: Traders are only required to contribute a small portion of the money involved in each trade and can borrow the rest from the trading platform — sometimes as much as 30 times the amount invested. Borrowing money to invest is always a risky move.
  • Unlimited: You can lose more money than you initially invest. Unlike most other investments, you can lose much more money than you started with, meaning you actually owe the CFD provider money.
  • No collateral: You don’t own the underlying asset. All you own is the contract between you and the CFD provider. Therefore, you can’t benefit from the capital growth of the underlying asset over the long term.
  • Volatile: Just like their underlying assets, CFDs are affected by market conditions and can swing wildly back and forth without notice in volatile markets.
  • Illiquid: Depending on the trading volume of the CFD, there may not be a buyer or seller available when you want to close out your position.

Can I trade CFDs in overseas markets?

US regulators prohibit US residents from trading CFDs both within the country and outside the country, so most foreign CFD providers will not allow US residents to even open an account. Dual citizens may be able to open a CFD account if they’re not living in the US. And if a foreign provider did allow a US resident to open a CFD account, it would likely not be regulated in its home country, adding further risks to trading activity.

Alternatives to CFDs

There’s no legal investment that operates just like CFDs in the US, but there are some that have elements in common:

Leveraged ETFs

Some ETFs utilize riskier derivatives in order to multiply gains or losses in select stock indices and commodities. You can buy or sell these in a normal brokerage account without risking any more than you invest and without owning or being obligated to own the underlying asset. Leveraged ETFs are designed for short-term trades, not buy-and-hold investing. They’re regulated by the SEC just like stocks and bonds.

Options

These are also leveraged to multiply the moves of an underlying stock, stock market index or commodity, and there’s no collateral needed if you’re a buyer of a call or put option and you don’t exercise it. Plus, you can’t lose more money than you invest and options are accessible in most mainstream stock trading platforms. Like stocks and commodities, options are regulated by the SEC, FINRA and/or CFTC.

Binary options

A lesser-known cousin to regular options, binary options — like CFDs — are a derivative investment that never owns or has an obligation to own the underlying asset. They’re a yes-or-no contract based on the price movement of the underlying asset within a limited timeframe, and they typically operate on a scale of $0 to $100.
For example, say you buy a binary option on gold for the current week at the strike price of $1,700. If the current price is just below $1,700, you might be able to buy the binary option for $50, and if gold ends the week above $1,700, you receive $100 back; if gold ends the week below $1,700, you get nothing.
You can also sell to close the binary option at the market price. Nadex is the only US-regulated exchange that allows binary options trading, so you’d have to open an account there. It’s focused on currencies, commodities and a few global stock indices.

Futures contracts

Futures also involve lots of leverage, and you can lose more money than you invest. But the big difference compared to CFDs is that futures involve the underlying asset — you’re obligated to buy or sell the asset in question on the delivery date. Futures are regulated by the CFTC and traded in specialized brokerage accounts. Not all mainstream trading platforms support futures trading.

Forex

Like CFDs and futures, the foreign exchange market involves substantial leverage, and you can lose more money than you invest. Forex trading can involve the underlying currencies — as in forex forwards and futures — but there are also spot forex derivatives that don’t involve any collateral. It’s an over-the-counter investment, but it’s supervised by the NFA and CFTC.

Compare stock trading platforms

While CFDs are illegal in the US, you can still trade other investments, like stocks, ETFs, options and futures. Compare platforms to find one that offers the investments you’re interested in.

11 of 11
Product Finder Score Available asset types Stock trade fee Minimum deposit Cash sweep APY Offer
Finder score
9 Excellent
Stocks, ETFs, High-yield cash account
$0
$500
4.00%
Get a $50 bonus when you sign up and fund a taxable automated investing account with at least $500.
Automate your stock and bond portfolio or trade individual stocks for as little as $1 apiece. Plus, earn 4% APY on your cash.
Go to site More info
Finder score
9 Excellent
Stocks, Options, Mutual funds, ETFs, Alternatives
$0
$0
0.01%
Get up to $1,000 in stock when you open and fund a new account. T&C apply.
Trade stocks, ETFs, and options with zero commissions, invest in IPOs or automate your portfolio, with exclusive perks available through SoFi Plus.
Go to site More info
Finder score
9 Excellent
Stocks, Bonds, Options, ETFs, Cryptocurrency, Investments, Retirement, Treasury Bills, High-yield cash account
$0
$0
4.1%
Get up to $10,000 and transfer fees covered when you move your portfolio to Public.
Build a diversified portfolio of stocks, bonds, options, ETFs and crypto, with a high-yield cash account and options contract rebates.
Go to site More info
OPTO logo
Finder score
7.2 Great
OPTO
Finder score
7.2 Great
Stocks, ETFs
$0
$0
4%
Earn up to $300 when you deposit between $2,000–$25,000+.
Copy top-performing portfolios or build your own stock index on Opto's AI-driven thematic investing platform, and get 4% APY on your cash.
Go to site More info
Interactive Brokers logo
Finder score
9.2 Excellent
Interactive Brokers GlobalTrader
Finder score
9.2 Excellent
Stocks, Options, Mutual funds, ETFs, Cryptocurrency
$0
$0
3.83% Lite
4.83% Pro
Trade in a simulated trading environment and access a wide range of tradable assets.
Go to site More info
eToro logo
Finder score
8.2 Great
eToro
Finder score
8.2 Great
Stocks, Options, ETFs, Cryptocurrency, Futures, Investments
$0
$0
3.9%
No commission stock, ETF and options trades, with 3.9% interest on your options account balance and no options contract fees. See full disclosure.
Go to site More info
Webull logo
Finder score
9.4 Excellent
Webull
Finder score
9.4 Excellent
Stocks, Bonds, Options, ETFs, Futures, Money market funds
$0
$0
Up to 8.10%
Trade stocks, ETFs and equity options commission-free, with access to futures, advanced charting tools, a robo-advisor and event trading powered by Kalshi.
Go to site More info
Zacks Trade logo
Finder score
8.2 Great
Zacks Trade
Finder score
8.2 Great
Stocks, Bonds, Options, Mutual funds, ETFs, CDs
$0.01
$250
2.83%
Get up to $1,000 when you open and fund an account. Terms apply.
Leverage powerful trading tools and low margin rates to trade stocks, options, ETFs, mutual funds and bonds.
Go to site More info
Robinhood logo
Finder score
9.4 Excellent
Robinhood
Finder score
9.4 Excellent
Stocks, Options, ETFs, Cryptocurrency, Futures, Event contracts, High-yield cash account
$0
$0
4%
Get a free stock when you successfully sign up and link your bank account.
Trade stocks, options, crypto and more, with advanced trading tools, fractional shares and exclusive perks for Gold members.
Go to site More info
Acorns logo
Finder score
8 Great
Acorns
Finder score
8 Great
Stocks, ETFs
$0
$0
N/A
Get a $20 bonus when you set up an account and make your first recurring investment (min. $5).
Automate investing with recurring contributions starting at $5 and invest spare change from everyday purchases.
Go to site More info
Stash Investments LLC logo
Finder score
7.4 Great
Stash
Finder score
7.4 Great
Stocks, ETFs
$0
$0
0.1%
Get $5 when you sign up and deposit $5.
Bank, automate your portfolio or invest in individual stocks and ETFs for as low as $3 per month.
Go to site More info
loading
Showing 11 of 11 results

What is the Finder Score?

The Finder Score crunches 147 key metrics we collected directly from 18+ brokers and assessed each provider’s performance based on nine different categories, weighing each metric based on the expertise and insights of Finder’s investment experts. We then scored and ranked each provider to determine the best brokerage accounts.

We update our best picks as products change, disappear or emerge in the market. We also regularly review and revise our selections to ensure our best provider lists reflect the most competitive available.

Read the full Finder Score breakdown

Bottom line

Despite their flexibility and popularity in other parts of the world, CFDs are deemed too risky to be regulated in the US — so Americans are prohibited from trading them. But there are still ways to maximize price movements and manage risk using other investment strategies. Get an overview of your investment options first, then dig into the details of the investment options that best fit you.

Frequently asked questions

Paid non-client promotion. Finder does not invest money with providers on this page. If a brand is a referral partner, we're paid when you click or tap through to, open an account with or provide your contact information to the provider. Partnerships are not a recommendation for you to invest with any one company. Learn more about how we make money.

Finder is not an advisor or brokerage service. Information on this page is for educational purposes only and not a recommendation to invest with any one company, trade specific stocks or fund specific investments. All editorial opinions are our own.

Belinda Punshon's headshot
Writer

Belinda Punshon worked for Finder as a writer on home loans and property and as a corporate communications executive. She has a Masters in Advertising, Public Relations and Journalism from the University of New South Wales and a Bachelors in Business from the University of Technology Sydney. See full bio

Ryan Brinks's headshot
Co-written by

Editor

Ryan Brinks is a former editor and publisher at Finder, specializing in investments. He holds a journalism degree from University of Wisconsin–River Falls. See full bio

More resources on Finder

Ask a question

Finder.com provides guides and information on a range of products and services. Because our content is not financial advice, we suggest talking with a professional before you make any decision.

By submitting your comment or question, you agree to our Privacy and Cookies Policy and finder.com Terms of Use.

Questions and responses on finder.com are not provided, paid for or otherwise endorsed by any bank or brand. These banks and brands are not responsible for ensuring that comments are answered or accurate.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

More guides on Finder

Go to site