CFD account: what is it?
CFD account: what is it, and how to open a CFD trading account in the UK. Discover more about the meaning of CFD accounts on Fineco's Newsroom.
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7 min reading
What is a CFD account?
There are two main ways to invest in the financial market: investing long-term by purchasing shares, bonds and fund units, or investing short-term through financial derivative instruments. For the latter, you must have a CFD account with which you can access an online trading platform and earn money from the volatility of shares.
CFD account: the meaning
A CFD account is a trading account with which you can invest via CFDs (Contracts for Difference). They are financial derivative products whose value depends on the underlying asset. A CFD can trade on a share, a raw material or a Forex currency exchange by replicating upward and downward trends.
With a CFD account, you can trade CFDs and speculate on underlying price trends by investing in any price direction. This is not possible when you buy a listed company’s shares or a country or company’s bonds. In these cases, you can only hope that the share increases in value or, when it comes to bonds, that the expected coupon is paid.
With a CFD account, you can also earn money when the underlying price decreases, you just need to buy a short position CFD. On the other hand, if you think that the underlying price will increase, you must purchase a long CFD. If you predict correctly, you make a profit, otherwise you sustain a loss. Closing the positions generally happens within a short time period, even within the same day (day trading).
CFD trading account: how does it work?
Once you open a CFD account with an intermediary authorised by the FCA (Financial Conduct Authority), you can invest in many different stocks, such as shares, indices, Forex currencies, raw materials and futures. Within a CFD account, there are online trading platforms which you can use via a desktop platform or from your smartphone app.
The platforms provide quotes on stocks you can invest in that are updated in real-time, depending on the market’s performance. There are also technical analysis instruments, such as graphs and trading indicators. With these instruments, you can study stock price trends to find out the best opportunities and build efficient investing strategies.
You can also use financial leverage, an instrument that allows you to increase the size of the investment whilst maintaining a smaller upfront capital. Modern CFD trading platforms also provide risk management instruments, such as stop losses and take profits. These functions allow you to limit losses and gains in a controlled manner, so that you can close positions at a specific price and reduce exposure to risks.
In order to invest, you must pay an initial deposit into your CFD account. The intermediary may also ask to hedge some positions when financial leverage is used. When you make a profit, it is credited to your CFD account and you can then use this for other operations, or withdraw it and deposit it into another bank account.
What is the best CFD account in the UK?
In order to choose a CFD account, you must consider some important points. Firstly, the intermediary must be authorised, which means that they must have a CFA license to work in the UK and be monitored by the competent authorities. In addition, the intermediary must comply with all the requirements set out by current legislation in order to ensure maximum security for their clients.
A CFD account should also offer modern and intuitive trading platforms, so that you can benefit from easy-to-use technology in order to invest in the market with CFDs. Professional instruments for technical analysis are also essential, as are accurate functions for managing risk and an efficient customer service for resolving possible issues and difficulties.
The CFD account must offer a wide range of assets to invest in, like, for example, many UK, US and EU stocks, the main Forex pairs, such as GDP/USD and GDP/EUR, all the main global stock market indices and commodities like petrol and gas. Costs must also be competitive and attractive, so you should opt for CFD accounts that don’t apply fixed commissions but just a spread on executed orders.
If you wish to open a CFD account, you can choose Fineco’s CFD account. We provide a wide range of financial markets and assets, advanced instruments for technical analysis and innovative functions for managing orders. We also offer zero commission, just a competitive spread. You can open a CFD account with no minimum deposit and have three CFD trading platforms at your disposal.
Information or views expressed should not be taken as any kind of recommendation or forecast. All trading involves risks, losses can exceed deposits.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 63.13 % of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Before trading CFDs, please read carefully the Key Information Documents (KIDs) available on the website finecobank.co.uk
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