Implementation · what you own

Beware of CFDs: holding a contract is not holding a security

Many European savers think they have bought a famous American ETF — a US-listed index fund, like the one tracking the Nasdaq-100 or the S&P 500. In reality, they often hold something else entirely: a CFD. The quoted price is the same, the line in the portfolio carries the same name, and yet the thing owned is not the same at all. This page explains the difference, why it matters most for long-term investors, and how to check what you actually hold.

What is a CFD?

A CFD — contract for difference — is a contract between you and the platform that mirrors the price of an asset without you owning that asset. You do not hold ETF shares in your name: you hold the platform's commitment to pay you the price difference between the opening and the closing of the position.

CFDs were originally a leveraged trading tool, designed to bet on short-term moves, up or down. As long as you use no leverage, a CFD tracks the asset's price very closely: that is precisely what sustains the illusion of having bought the security. But legally, what you own remains a contract, not a fund share.

Why does a European end up with a CFD without looking for one? Because US ETFs cannot be distributed to retail investors in Europe: lacking the regulatory information document required by European Union rules, buying them directly is blocked at every broker (the regulatory wall and the way around it are covered separately). So when you type the name of a US ETF into a platform's search bar, what comes up is not the fund itself, but a CFD that imitates its price.

CFD or real security: what you actually hold

The comparison is not about displayed performance — without leverage, both track the same price — but about the nature of what you own, and about what happens when things go wrong.

The hidden cost: a percentage on every move

The main cost of a CFD is not a stated commission but the spread — the difference between the buy price and the sell price. It is charged once on opening and once on closing. On an ETF it is small — on the order of a tenth of a percent per side — so almost invisible for someone who buys once and holds.

The difference in nature from a classic broker appears as soon as you add up or scale up. A spread is a percentage of the amount: it stays the same whether you commit a thousand euros or a million. A fixed commission, by contrast, does not depend on the order size. The consequence: the larger the portfolio, the more the percentage model costs against a fixed-commission one. And on a strategy that rebalances regularly, that percentage is paid on every rotation and ends up eating into returns year after year.

Two peripheral fees weigh further on a "set it and forget it" approach: inactivity fees, charged by some platforms after a long period without logging in, and currency-conversion fees when the account is held in a currency other than yours. The trap here is not a one-off cost but a slow erosion.

(Overnight fees only hit leveraged positions: without leverage there is no borrowed money, hence no financing to pay.)

A guarantee of a different nature

This is the most important point for wealth meant to last. With a broker that holds your securities outright, those securities belong to you and are not on its balance sheet: even if it goes bankrupt, your shares are returned. With a CFD, you hold no security — you hold a contractual claim on the platform. You are therefore exposed to its failure in a way that a holding of real securities is not.

The compensation scheme, for its part, does not protect against a fall in the value of your securities: it covers only the case where the broker fails to return your assets — fraud, misappropriation, broken bookkeeping. For genuine segregated securities it is a last-resort net you will most likely never touch: segregation does the work, and your shares are returned even if the broker disappears. For a CFD there is no segregated security to return — the scheme becomes your only net, and it is capped. Same amount, radically different role.

That cap is, in practice, the European minimum — on the order of €20,000 at most pan-European brokers (Ireland, Germany, Cyprus). So it is not where the difference between platforms is decided. Where it does vary markedly is outside Europe: for the US leg of the strategy, the equivalent scheme (SIPC) covers far more — up to $500,000 per client. See Setting up the US leg from Europe.

Last checked: June 2026. Compensation caps depend on the regulator and may change.

How to check, and how to fix

Checking what you hold is simple. A CFD position is flagged as such, with the label "CFD", at the moment you place the order. A real security, by contrast, comes with a downloadable regulatory information document. One more clue: if you searched for the name of a US ETF — one of the big US-listed funds — and the purchase went through, it was almost certainly a CFD, since the real fund is not distributable in Europe.

Fixing it does not necessarily mean changing brokers. Many platforms now offer, alongside their CFDs, genuine European index funds — the UCITS ETFs, governed by European regulation, which give real ownership and access to investor protection. Replacing a CFD on a US index with the equivalent UCITS ETF is enough to move from the contract to the security. For larger wealth, or for whoever wants the lowest fees and a top-tier custodian, a fixed-commission broker holding the securities outright remains the most robust route.

The principle is the same as for the rest of this strategy: the aim here is not extra return, but robustness. Holding the real security ensures that what you own stays yours — transferable, segregated, guaranteed — whatever happens to the platform.