Unveiling CFD Contracts: The Hidden Scams and Risks Behind High Returns

First, Recognize This Reality: 70% of Retail Investors Are Losing Money

If you’ve recently been introduced to investing in CFDs (Contracts For Difference), take a moment to think—according to relevant research data, up to 70% of retail investors are losing money. This is not sensationalism; it reflects the true state of the market.

Why is the loss rate so high? Because CFD trading appears simple (low entry barrier, high leverage, T+0 two-way trading), but in reality, it carries enormous risks. Moreover, the market is flooded with unqualified “wildcat platforms” that lure investors with high leverage and zero commissions, only to ultimately wipe out their capital.

Therefore, before diving into CFD trading, you must understand: this is not a tool for easy money, but a high-risk game.

What is a CFD (Contract For Difference)? So simple you might not believe it

A CFD (Contract For Difference) is essentially just a contract. Both buyer and seller sign an agreement to settle via cash, trading the price fluctuations of financial market commodities (forex, crude oil, stocks, cryptocurrencies, etc.).

The key point is: you do not own any physical assets. You are not buying real Bitcoin or Apple stocks; you are trading a contract that predicts price movements.

For example, if you believe oil prices will rise, you can “buy” an oil CFD contract (go long). Conversely, if you are bearish, you can “sell” a contract (go short). If the price moves as you expect, you profit from the difference between opening and closing.

This trading mode sounds flexible, but here’s the problem—leverage can amplify both gains and losses.

What are the advantages of CFD trading? Don’t be fooled by appearances

Two-way trading + T+0 system

The most attractive feature of CFDs is that you can profit whether the market goes up or down. Going long when prices rise, short when they fall—market volatility becomes an opportunity. Plus, contracts bought or sold on the same day can be closed at any time, without the T+1 trading restriction, making response much faster.

Leverage allows controlling large positions with small capital

With as little as a small margin deposit, you can control positions far larger than your capital. For example, with 1:100 leverage, you only need $100 to trade a $10,000 position.

It sounds like a gift from heaven, but this is exactly the trap for 95% of losers.

Relatively low costs

CFD platforms usually do not charge commissions; main costs come from spreads (the difference between buy and sell prices) and overnight interest. Compared to stock trading, the per-trade cost is indeed lower.

But “relatively low” does not mean risk-free—if you choose the wrong platform, spreads can be maliciously widened, turning this “low cost” into a huge drain.

What you need to know about trading costs

Spread costs are the main expense

Trading 1 standard lot of EUR/USD, if the spread is 0.00006, the cost is $6. This amount is deducted at the moment you open the position, and there are no additional fees when closing.

Choosing a platform with a large spread is like losing money before you even start trading.

Overnight interest can erode profits

If you hold a position overnight, the platform will charge overnight interest. This fee depends on position size, interest rate differentials, and holding time.

Most CFD traders adopt short-term strategies and do not hold positions overnight, so this fee has little impact on them. But for long-term holders, overnight interest can gradually eat into profits.

The real risks of CFD: why it’s easy to fall into traps

Unregulated platforms and regulatory risks

This is the most deadly risk. Many CFD platforms lack proper regulatory licenses; some even operate “naked.” They may:

• Completely hide their regulatory status
• Obtain lax licenses from small countries or islands to deceive investors
• Charge high spreads (appear to have zero commissions, but spreads are huge)

These platforms often operate by collecting investor funds and then fleeing with the money.

Leverage is a double-edged sword

1:100 leverage means that just a 1% market move against your position can wipe out your margin. Suppose you invest $1,000 and open a 1:100 leveraged long position; if the market drops 2%, your $1,000 is gone.

This explains why 70% of retail investors lose money—most overestimate their prediction ability and overuse leverage.

You do not own actual assets

You are buying a contract, not the real asset. This means:

• Stock CFDs do not pay dividends
• You cannot exercise shareholder rights
• Everything depends on the platform’s contract design

If the platform runs away, you have no recourse.

How to identify legitimate platforms? This is your insurance

First-class regulatory licenses are your guarantee

Don’t be fooled by any excuses. When choosing a platform, verify licenses from top-tier regulatory agencies:

• UK FCA (Financial Conduct Authority)
• Australia ASIC (Australian Securities and Investments Commission)
• US CFTC (Commodity Futures Trading Commission, limited to the US)
• Europe ESMA (European Securities and Markets Authority)

These regulators impose strict requirements: regular financial reporting, client transaction reporting, fund segregation, etc. Platforms holding top-tier licenses offer better protection for investor funds.

Other screening criteria

• Company age: Platforms established for over 5 years are more trustworthy than new ones
• Chinese-speaking customer service: Having professional Chinese support in Asia is a plus for faster issue resolution
• Reasonable spreads: Extremely low spreads may be a lure; beware
• Withdrawal convenience: Understand the withdrawal process; some platforms hide hidden fees

CFD vs Forex Margin Trading vs Futures—who should you buy?

CFD vs Forex Margin Trading

Forex margin trading is a subset of CFD trading, limited to forex pairs (e.g., EUR/USD), while CFDs cover stocks, indices, commodities, cryptocurrencies, and more. Both are margin trading without physical delivery, with costs mainly from spreads.

Forex margin trading has expiry dates set, whereas CFDs usually do not.

CFD vs Futures

Futures involve physical delivery at expiry, requiring settlement. CFDs are purely margin trading without forced delivery dates; positions can be closed anytime.

Futures require paying transaction taxes and fees; CFDs’ main cost is the spread. In terms of trading flexibility, CFDs are more versatile; in asset ownership, futures are more formal.

Four questions every beginner should ask

Q1: Is CFD trading legal in Taiwan?
A: Yes. Taiwan does not prohibit CFD trading, but platforms must hold top-tier international regulatory licenses to be compliant. Unlicensed platforms operating in Taiwan are illegal.

Q2: Is CFD investing or speculation?
A: Mostly speculation. The trading cycle is short, aiming for quick profits or risk hedging—this is essentially speculation. Long-term holding is rare.

Q3: When is CFD trading most active?
A: CFDs are open 24 hours on weekdays, but the most liquid periods are during the overlap of European and US sessions, from 8 PM to 2 AM Taiwan time. Volatility is high then, but so is the risk of liquidation.

Q4: How to avoid scams?
A: The first step is to check the platform’s license number on the regulatory authority’s official website. If you cannot find it or the info doesn’t match, do not proceed.

Summary: Three bottom lines for rational investing

1. Platform must be compliant: Verify top-tier regulatory licenses, at least 5 years of history, and Chinese customer service
2. Learn risk management: Don’t overuse leverage, set stop-loss and take-profit orders, and keep single trade risk within 1-2% of your account
3. Face reality: The fact that 70% of retail investors lose money is not a coincidence but the result of leverage and human weakness

CFD contracts themselves are not scams, but the market is indeed filled with many scam platforms. Choosing the right platform and doing proper homework is the only way forward.