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CFD trading: US laws and alternative plays

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

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Ryan Brinks's headshot

By

Belinda Punshon

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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.

ResponseMale (%)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.

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Finder Score Available asset types Stock trade fee Minimum deposit Cash sweep APY bullet point infobox
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&Cs apply.
Trade stocks, ETFs, and options with zero commissions, invest in IPOs or automate your portfolio, with exclusive perks available through SoFi Plus.
Important information
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE Other fees, such as exchange fees, may apply. Please view our fee disclosure to view a full listing of fees. Investing in alternative investments and/or strategies may not be suitable for all investors and involves unique risks, including the risk of loss. An investor should consider their individual circumstances and any investment information, such as a prospectus, prior to investing. Interval Funds are illiquid instruments, the ability to trade on your timeline may be restricted. Brokerage and Active investing products offered through SoFi Securities LLC, Member FINRA (www.finra.org) /SIPC(www.sipc.org). There are limitations with fractional shares to consider before investing. During market hours fractional share orders are transmitted immediately in the order received. There may be system delays from receipt of your order until execution and market conditions may adversely impact execution prices. Outside of market hours orders are received on a not held basis and will be aggregated for each security then executed in the morning trade window of the next business day at market open. Share will be delivered at an average price received for executing the securities through a single batched order. Fractional shares may not be transferred to another firm. Fractional shares will be sold when a transfer or closure request is initiated. Please consider that selling securities is a taxable event. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire investment Before trading options please review the Characteristics and Risks of Standardized Options Advisory services are offered by SoFi Wealth LLC, an SEC-registered investment adviser. Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see https://www.sofi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information SoFi Plus members can schedule an unlimited number of appointments with a financial planner during periods in which the SoFi Plus member meets the eligibility criteria set forth in section 10(a) of the SoFi Plus Terms and Conditions. SoFi members who are not members of SoFi Plus can schedule one (1) appointment with a financial planner. The ability to schedule appointments is subject to financial planner availability. SoFi reserves the right to change or terminate this benefit at any time with or without notice. Advisory services are offered by SoFi Wealth LLC, an SEC-registered investment adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at www.adviserinfo.sec.gov. Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease Robo Advisor: Automated investing is offered through SoFi Wealth LLC, an SEC-registered investment adviser. 0.25% fee is based on your account value. The wrap program fee may cost more or less than purchasing brokerage, custodial, and record keeping services separately. Terms and conditions apply*. For 401k rollovers, existing SoFi IRA members must complete 401k rollovers via this link For SoFi members without a SoFi IRA, a SoFi IRA must first be opened, and 401k rollover must be completed utilizing Capitalize via this link. SoFi and Capitalize will charge no additional fees to process a 401(k) rollover to a SoFi IRA. SoFi is not liable for any costs incurred from the existing 401k provider for rollover. Please check with your 401k provider for any fees or costs associated with the rollover. For IRA contributions, only deposits made via ACH and cash transfer from SoFi Bank accounts are eligible for the match. Click here for the 1% Match terms and conditions.
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Finder score
8.2 Great
Stocks, Bonds, Options, Mutual funds, ETFs, CDs
$0.01
$250
2.83%
Leverage powerful trading tools and low margin rates to trade stocks, options, ETFs, mutual funds and bonds.
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Finder score
9.4 Excellent
Stocks, Options, ETFs, Cryptocurrency, Futures, Event contracts, High-yield cash account
$0
$0
3.75%
Get a free stock when you successfully sign up and link your bank account. T&Cs apply.
Trade stocks, options, crypto and more, with advanced trading tools, fractional shares and exclusive perks for Gold members.
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Webull logo
Finder score
9.4 Excellent
Webull
Finder score
9.4 Excellent
Stocks, Bonds, Options, ETFs, Futures, Money market funds
$0
$0
3.85%
Deposit or transfer $100,000+ to earn a 4% Match Bonus, or $2,000+ to earn a 3% Match Bonus. Plus: Get a $100 transfer fee reimbursement on your first brokerage transfer of $2,000 or more. T&Cs apply.
Trade stocks, ETFs and equity options commission-free, with access to futures, advanced charting tools, a robo-advisor and event trading powered by Kalshi.
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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.
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eToro logo
Finder score
8.2 Great
eToro
Finder score
8.2 Great
Stocks, Options, ETFs, Cryptocurrency, Investments
$0
$0
3.75%
No commission stock, ETF and options trades, with 3.9% interest on your options account balance and no options contract fees. See full disclosure.
Important information
eToro securities trading offered by eToro USA Securities, Inc. (‘the BD”), member of FINRA and SIPC. Investing involves risk, and content is provided for educational purposes only, does not imply a recommendation, and is not a guarantee of future performance. Finder is not an affiliate and may be compensated if you access certain products or services offered by the BD.
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Public logo
Finder score
9 Excellent
Public.com
Finder score
9 Excellent
Stocks, Bonds, Options, ETFs, Cryptocurrency, Investments, Retirement, Treasury Bills, High-yield cash account
$0
$0
3.8%
Get up to $10,000 and transfer fees covered when you move your portfolio to Public. T&Cs apply.
Build a diversified portfolio of stocks, bonds, options, ETFs and crypto, with a high-yield cash account and options contract rebates.
Important information
*Yield as of 04/09/2025. Learn more.
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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). T&Cs apply.
Automate investing with recurring contributions starting at $5 and invest spare change from everyday purchases.
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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. T&Cs apply.
Bank, automate your portfolio or invest in individual stocks and ETFs for as low as $3 per month.
Important information
Investment advisory services offered by Stash Investment LLC, a SEC registered investment advisor. Investing involves risk and investments may lose value. Holdings and performance are hypothetical. *Offer is subject to T&Cs
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Wealthfront logo
Finder score
9 Excellent
Wealthfront
Finder score
9 Excellent
Stocks, ETFs, High-yield cash account
$0
$500
3.75%
Get a $50 bonus when you sign up and fund a taxable automated investing account with at least $500. T&Cs apply.
Automate your stock and bond portfolio or trade individual stocks for as little as $1 apiece. Plus, earn 3.50% APY on your cash.
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JPMorgan logo
Finder score
7.2 Great
J.P. Morgan Personal Advisors
Finder score
7.2 Great
Mutual funds, ETFs
$0
$25,000
N/A
Financial planning, advice and portfolio management. T&Cs apply.
Get ongoing access to an advisory team with personalized financial planning and expert-built portfolios. Provider terms & conditions apply
Important information
INVESTMENT PRODUCTS ARE: NOT A DEPOSIT • NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE.
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M1 Finance logo
Finder score
8.2 Great
M1 Finance
Finder score
8.2 Great
Stocks, ETFs, Cryptocurrency
$0
$100
4.00%
Build a custom portfolio of stocks and ETFs with automatic rebalancing. Plus, earn 4.00% APY with a high-yield cash account.
Important information
M1 Finance, LLC does not charge commission, trading, or management fees for self-directed brokerage accounts. You may still be charged other fees such as M1’s platform fee, regulatory fees, account closure fees, or ADR fees. For a complete list of fees M1 may charge visit M1 Fee Schedule. M1 is not a bank. M1 Spend is a wholly-owned operating subsidiary of M1 Holdings Inc.. M1 High –Yield Savings Accounts are furnished by B2 Bank, NA, Member FDIC. Obtaining stated APY (annual percentage yield) with the M1 High-Yield Savings Account does not require a minimum account balance. Stated APY is accrued on account balance. APY is solely determined by M1 Spend LLC and its partner banks, and will include account fees that will reduce earnings. Rates are subject to change without notice. M1 High-Yield Savings Account is a separate offering from, and not linked to, the M1 High-Yield Cash Account offered by M1 Finance, LLC. M1 is not a bank.
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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

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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

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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

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