Prices at Nairobi’s Marikiti and Gikomba markets change constantly. Tomatoes from Kirinyaga may sell cheaply one week after a strong harvest, and prices can climb sharply when heavy rain disrupts supply from the farms. Traders in these markets develop an instinctive sense of price movement, and that everyday experience offers a useful way to understand one of the most confusing financial products marketed online to Kenyans.

The product known as a contract for differences works on the same principle, with two parties exchanging the change in an asset’s price and no transfer of the asset itself. In a market version of the arrangement, a buyer and a seller agree on the price of a crate of tomatoes today, with one expecting the price to rise and the other expecting it to fall. No tomatoes are delivered. After a set period, the party whose forecast proved wrong pays the other the difference between the starting price and the new market price. The tomatoes never leave the farm. Money changes hands based solely on the movement of their price.

Financial CFDs follow the same structure, with underlying assets that include gold, crude oil, the US dollar against the euro, and shares in global companies. Traders who expect a price to rise open a long position, and those who expect a decline go short. Profits or losses come only from the movement between opening and closing the trade, so CFDs give traders exposure to markets that would otherwise be difficult to access from Kenya. The market analogy applies to margin as well. Wholesalers sometimes place large orders with a small deposit and pay the balance later. The same applies to CFDs where only part of the value of the position has to be paid out. That margin, called leverage, allows a deposit of a few thousand shillings to control exposure of many times that amount. Leverage magnifies gains and losses alike, and a small price move against the position can erase the entire deposit quickly.

Costs follow patterns familiar to anyone who has bought produce from middlemen. Brokers quote separate buying and selling prices, and the gap between them is called the spread, which serves as a key source of broker revenue. The spread is the difference between the price at the farm gate and what shoppers pay in town. Overnight positions typically incur a financing charge, which is comparable to the interest that is charged on goods that are purchased on credit.

Ownership can cause confusion as owners of CFDs do not own anything. Many new-comers mistakenly believe that a CFD on company shares has voting rights or other shareholder benefits. As a matter of fact, the contract moves in tandem with the share price, and brokers make dividend adjustments in accordance with the terms of the contract. Kenya’s Capital Markets Authority regulates which brokers can offer such products, and checking a firm’s license remains an important first step.

The analogy has limits. Market vendors deal in merchandise they can see, touch, and sell, and their inventory retains some value even when prices fall. Positions held through a contract for differences offer no comparable buffer, and on some platforms losses can exceed the initial deposit. Advertising in Kenya often points out the possible benefits, but it’s important to understand these risks.