What is a CFD account? Features, history and different types
A CFD account is an online trading account that allows you to buy and sell contracts for difference (CFDs). However, while that’s true in general terms, the real answer is more complex. Specifically, CFD trading accounts offer a variety of features that not only make them more flexible an investment, but also a very attractive asset class for all types of investors.
The three important features that distinguish a CFD account from other types of financial accounts are:
The history of CFD accounts
Online CFD accounts weren’t always around. Getting to the stage where consumers could trade contracts for difference via their computer or mobile required a few things to happen:
- 1990-1995 - Contracts for difference were developed in London as a way of swapping equity by trading on a margin.
- 1995-1999 – Hedge funds began using CFDs, as did institutional traders, as it gave them a cost-effective way to gain exposure to the London Stock Exchange.
- 2000-2010 – Early online trading platforms opened up CFD trading to retail customers. The benefits of using online trading accounts started to become clear at this point. One of the early innovations was the ability to show live pricing data. Before the age of digital technology and the internet, traders used the open outcry system. If you’ve ever seen video footage from a trading pit (or scenes from a movie), the open cry system is where people shout and use hand signals to execute trades. By 2010, digital technology made this system obsolete.
- 2010 Onwards – Today, modern CFD trading accounts are available for desktop and mobile devices. What’s more, you can open free demo CFD accounts, trade as a professional and access the markets via a selection of platforms, including Skilling MetaTrader 4.
How to open a CFD account online
To create a free CFD account online at Skilling, follow these steps:
Opening a CFD Account: Step by step guide
- Click the “sign up” button at the top of this page.
- Fill in the registration form: email, password, country, phone number, currency, licencing entity.
- Once you’ve filled in the form, use the free CFD demo account to test out the system. Alternatively, you can complete the registration process to create a full account.
- For the full account, you need to supply these additional details: name, date of birth, nationality, address, national insurance number and confirm that you’re not a US resident for tax purposes.
- You’ll also need to enter your employment details, annual income and where your money is coming from. Finally, state your level of education, reason for trading and your level of experience.
- You’ll then need to complete a final questionnaire (if you’re a beginner) and some tax information.
- The last step is verifying your identity by submitting a photo and some ID. Once you’ve cleared that stage, you can make a deposit and start trading.
CFD account vs. investing account
The main benefits of using CFD trading accounts are outlined in the previous sections. Leverage is of particular interest to any trader using this type of account because of the added benefit trading on margin can carry. However, there are some additional differences between CFD accounts and investing accounts of other financial assets:
Investing accounts require you to pay the cost of the asset. For example, if shares in company X cost €100, you’d have to pay €100 for a single share. CFD accounts online allow you to use leverage which, in turn, means you can trade on a margin. To put it another way, you can speculate on company X by investing less than €100, e.g. a margin of 10X would mean you’d only need to invest €10 (10 X 10 = 100).
When you buy shares or commodities, you’ll often have to pay commission. This is a charge that’s added on top when you make an investment. CFD trading accounts don’t charge commission. Instead, the cost of making a trade will be factored into the price you pay, i.e. the spread. Costs Contracts for difference accounts are free. There are premium options but, on the whole, you don’t have to pay to open or maintain an account. In contrast, traditional investing accounts will carry a maintenance cost - a monthly charge for owning an account.
CFD accounts allow you to trade micro lots as small as 0.01. Investing accounts require you to take larger positions on shares and other assets. Therefore, if you’re a novice, CFDs are useful in this regard.
CFD account types
To fully answer the question “what is a CFD account”, you need to know that we offer two retail options: Standard and Premium. The former is suitable for beginners and novices, while the latter provides slightly different variables for advanced traders:
- Commission: Standard = N/A – Premium = $35/million
- Spreads: Standard = 0.7 – Premium = 0.1
- Starting Deposit: Standard = €100 – Premium = €5,000
- Leverage: Retail = 1:30 – Professional = 1:200
Click here to learn more about Skilling CFD trading accounts. For additional, advanced features and the ability to trade with higher leverage, we also offer professional trading accounts. Qualification is based on merit and your trading volume. Additionally, you’ll need to make, on average, 10 trades each month and have a portfolio worth €500,000 or more. If you’re offered a professional CFD account, you’ll get enhanced support and trading options to suit your preferences.
Not investment advice. Past performance does not guarantee or predict future performance.
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