CFD or Contract of Difference refers to a popular way of derivative trading. This type of trading allows you to gamble on the increase or fall of the prices of financial instruments, such as, indices, shares, currencies, treasuries, and commodities. It is actually a contract between a trader and a spread-betting firm under which both the parties need to exchange the difference between opening and closing rates of a particular financial instrument, such as, shares.
CFD trading enables you to trade with a margin so you can trade big with a small amount of investment. Accordingly, it is not necessary to pay the entire value of the contract when you are opening it. Instead, you can do the same by paying just 5 percent of the overall value which will eventually improve your purchasing power. Likewise, it will help increase your potential for gaining higher return on a small investment capital though it does pose a risk of higher losses too.
What is a CFD Account and what is good about it?
Like any other online trading format, trading CFDs requires you to have your own CFD account in order to get started. At this point, it is worth mentioning that the purchasing and selling of CFDs can only be done through a CFD provider not a third party. Fortunately, opening a trading account is as simple as opening a bank account. There are many online CFD providers that provide you with the platforms where you can open your account and start trading right away. However, nearly all CFD providers will need you to meet certain criteria to be accepted as a client.
Criteria to Open A CFD Account
Opening a CFD account is very simple and can be done in a matter of minutes. There are, however, some perquisites in order to open an account and be a client of a CFD provider such as below:
- You must have enough savings and earnings
- You must have minimum level of knowledge and experience though some provider also offer demo accounts for beginners to learn about the basics first.
- You must be aware of the market situations, price fluctuations, profit margin, loss risks, etc.
- You must know what a bid is and how to make it.
- You must know what an offer is and how to make it.
Although most CFD providers have certain requirements to accept individuals as clients, there are also some websites that allow you to go ahead without a minimum balance to open their CFD account and obligation to deposit or trade. Likewise, many providers offer their demo accounts along with relevant features, helping newbies to learn and practice CFD trading before they actually start with real trading.
Making Transactions with CFD Account
Once your account is opened and funded, you are all set to start trading and make some solid returns. As a newbie, you may feel your first trade is the most daunting one but once you have done 4 to 5 deals out of the way, you will surely feel comfortable and confident in making your trades. Let’s discuss how it goes:
Depositing Funds into Your CFD Account
You may have many questions in mind regarding your CFD account, for instance, how you can deposit into or withdraw funds from your account. Preferably, you will look to withdraw money as a result of successful implementation of your CDF trading plan so you can gain your trading profits. However, when it comes to activate your CFD account for trading, you will need to deposit funds to get your account approved. This process requires depositing money through any of available channels, such as cheque, credit card or BPay. Each payment option differs from other in term of clearance time, for example, depositing money through BPay will take up to two days to process in your CFD account. Similarly, if you are funding through a cheque, it will need 3 to 5 days to be cleared and the funds to be deposited into your account. The fastest way, however, is to fund into your CFD account via credit card which merely takes a couple of hours to process, allowing you to trade the same day.
Withdrawing Money From Your CFD Account
This phase usually comes as a result of your CFD trading profits. Just like depositing funds into your CFD account, withdrawal of money is quite simple. Most traders do this by linking a nominated bank account to their trading account and submitting a fund withdrawal form. You can also do this online through your CFD trading platform or broker in a matter of minutes.
Benefits of a CFD account
Having an online CFD account frees you from vising broker or filling up any physical forms to make transactions. With the ease of the internet, you can open your online account and link it with your trading account with the comfort of your living room. It also helps you use other trading tools, such as expert charting packages, free educational resources or videos, educative seminars, and a superior CFD trading that can be really useful for your overall trading venture. An online CFD account not only allows you to do your transactions but also helps you constantly upgrade your knowledge about trading and check prices live. All you need to do is to log on to your CFD account and benefit from the features provided.
The Bottom Line
Opening and making transactions through your online CFD account is just like dealing with your bank account. You can easily put your money into and withdraw it from the account. Most online CFD trading platforms are user friendly and do not require you to have any special knowledge or expertise. If you are a computer savvy, dealing with online CFD account and its features should be very easy and convenient for you. Since most CFD service providers offer user-friendly environment and free demo account for beginners, anyone without a prior knowledge or experience can get into it and make money.