According to Investopedia... Traders who expect an upward movement in price will buy the CFD, while those who see the opposite downward movement will sell an opening position. The net difference representing the gain or loss from the trades is settled through the investor's brokerage account. CFDs trade over-the-counter (OTC) through a network of brokers that organize the market demand and supply for CFDs and make prices accordingly. CFDs are traded on margin meaning the broker allows investors to borrow money to increase leverage or the size of the position to amply gains. Brokers will require traders to maintain specific account balances before they allow this type of transaction.
I don't have a complete answer for this, but according to Investopedia... Since the CFD industry is not highly regulated, the broker’s credibility is based on its reputation and financial viability. As a result, CFDs are not available in the United States. I think in many cases, the broker is taking the other side of the trade. The broker may in some cases be able to neutralize or hedge their position by taking the other side of another trade, from a different customer. But each customer is still "betting against the house." In that sense, it's not a true marketplace, and it's more like a casino, more like betting on a horse race or a football game. You win or lose money based on the outcome of a certain event, but you don't actually own anything. And yet CFDs are considered derivative securities. US laws simply don't allow this type of casino-like operation, for the same reasons that most binary options are prohibited in the US. It's an effort to protect consumers from something that many people consider a form of gambling in which the game is heavily rigged in favor of the house. I have never traded CFDs. I am a US citizen. But from what I have read, I have the impression that even if you are right about the movement of the underlying stock, index, or other instrument, it is often impossible to actually win due to very wide spreads in pricing and high commissions.
I didn't think buying and selling CFD's was quite that "formal". I must've been thinking of something else.