CFD Trading: CFD definition

Types of CFD account

Basically there are two types of CFD trading accounts- a Standard Account and a Limited Risk Account. In a standard account, the sum of money lodged determines the overall size of the margin need for any kind of bet. Here the margin requirement will be the percentage of your financial liability that is related to your bet. Sometimes you have to make a margin payment in order to maintain positions if the positions have moved against you. This happens because you have to meet the complete value of all running losses from your positions, in addition to initial margins that is needed to create the position. There are chances that you may lose more than your initial investment with a Standard Account.

For all those who have a poor appetite for risk, the Limited Risk Account is most suitable. Individuals are required to deposit appropriate funds in order to cover the maximum amount of loss before one is able to trade. For this you are required to place a Guaranteed Stop Loss every time you open a position. You have to choose a price at which the bet might be closed in case the market moves against you.

Opening a CFD account

Before opening an account, all the applicants are required to read and understand the CFD amendments, Product Disclosure Statement and make an immediate and initial deposit of $5,000 into the CFD account. The contract value of the CFD can be calculated by multiplying the number of securities specified in the contract by the price of the underlying security. Now in order to open an account, you need to fill out a downloadable form by taking a simple print out and the required details filled in. Then this form can either be mailed or faxed to the respective office. The only reason why you are asked to open a CFD account is; in order to process your payments the CFD companies will require your personal details like your delivery address and billing address.