CFD Trading Account: What it is and How it Works


Investing through a CFD account is becoming more and more common, first in America and then also in Italy, thanks to the help of computer tools that make it available to everyone. For those who are interested in trading online, or simply want to learn more about the subject, below we will explain everything you need to know about CFD Accounts.

What are CFD Accounts

CFD is an acronym that stands for Contract for Difference. These are instruments that replicate the financial performance of a real asset, which is called the underlying asset. So if I buy a CFD of a company I do not become its shareholder, but I can gain (or lose) based on its performance on the stock exchange.

Consequently, CFD Accounts are those online trading accounts that allow us to use this tool, in a simple and immediate way.

How They Work

As soon as we have chosen which asset to bet on, we have to decide in which direction to position ourselves. There are two possibilities: long and short. In case we choose the first option, we will make a monetary gain if the asset increases its value. But if we think that the asset will depreciate, then we can also gain by selecting the short option. Obviously, the gain or loss we will make will be proportional to the increase or decrease in value of that asset.

One more possibility is to use the so-called leverage, which acts as a multiplier of our position. If, for example, we decide to open a long position, equal to 300 euros, we could decide to apply X10 leverage. In this case, this would be equivalent to having opened a position of 3000 euros, increasing our earnings more than they would without the use of leverage. However, this also applies in reverse, so we are exposing ourselves at the same time to a risk of suffering greater losses.

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Also remember stop loss and take profit. The first one closes automatically our position when we reach a certain loss. The second one closes automatically our position as soon as we have made a certain gain.

Finally, the spread is a cost that is incurred by the user at the time of opening a position as compensation for the broker on which we are operating.

Why and When to Use a Demo Account

If using a CFD account is within everyone’s reach, it can be scary to personally invest your savings without having adequate knowledge of the world of finance. That is why there is the possibility to start with a demo account. This means that you will be given a certain amount of virtual money to invest at will, without having to use real money.

This can be useful for anyone who is a beginner and wants to become familiar with the medium before moving on to their real savings. In fact, the demo account works in every way like a real account, the only difference being that, of course, the money can never be withdrawn.

Best CFD Accounts

One of the most famous online brokers is definitely eToro. The platform can boast of excellent safety standards, as it has three licenses to operate (FCA, CySEC and ASIC). It is a very easy to use broker, in which we can find shares of listed companies, stock indices, cryptocurrencies, commodities and more.

It also provides the ability to interact with other members, exchanging opinions just like on any social network.

 

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In addition, for those interested, it makes available the option to trade without having to operate in person. In fact, on eToro you can copy the best traders, and earn when they do (as well as lose if they lose). It can be used both via web browser and via app.

 

Directa Trading instead is a broker completely made in Italy. As far as commissions are concerned, you will be able to choose between three different regimes: proportional, fixed and degressive. The proportional regime applies commissions at a variable rate compared to the traded value. The fixed regime instead, as the word says, foresees the application of a standard commission. Finally, the degressive regime is recommended for those who carry out many operations, in fact the more numerous these are, the less you will have to pay.

 

A positive aspect of Directa is that it acts as a tax substitute, i.e. it takes care of the payment of the user’s taxes by itself, so that the user does not have to get lost in the maze of bureaucracy in order to comply with the tax authorities.

Final Considerations

In conclusion, CFD accounts are a great way to trade independently, without resorting to paperwork and complex procedures, but using your PC or smartphone. Of course, it should be remembered that before starting to invest it would be better to refine your knowledge of financial instruments, and not to be fooled by easy gains. If you are new to the industry, starting with a demo account may be the best choice to familiarize yourself with the platform.

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In addition, when you start to invest you must first make sure if the broker you use operates in a declarative regime or is a tax withholding agent. The latter in fact will exempt you from tax practices, while in the first case we will have to do them independently to avoid unpleasant penalties.

 


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