Best CFD Brokers List- Get The Best Online CFD Trading Platform
CFD trading has been creating a lot of buzz in the world of financial trading. Low startup cost and leveraged returns attract many traders to invest in CFD assets. CFD brokers are responsible for the majority of CFD trading. Hence we must find who the best CFD brokers are and who offers the best CFD platform.
In this evolving and unpredictable CFD market, it is easy to make mistakes and incur losses.
Hence choosing a good platform and broker is very important. But how do we know which one is the best among the multitude of options that are available on the market?
We aim to list out the best CFD brokers and online CFD platform so you can make the right choice.
But first, we’ll try to understand the basic concepts of CFD and its advantages and disadvantages. We’ll also understand what brokers and platforms are.
Finally, we will discuss the criteria for choosing a good CFD broker. Let’s get started!
What are CFD’s?
CFD stands for Contracts for Difference. As the name suggests, it is a contract or an agreement between the buyer and seller.
This contract dictates exchanging the difference in the value of a financial instrument. The difference between its current value and its value at the time of the contract.
This instrument can be a share, index, commodity or currency. This underlying asset is not owned by either the buyer or the seller at any time the contract lasts.
In simple terms, if the price of the asset rises, the buyer makes money. If the price decreases, the seller makes money.
Speaking of duration, there is no fixed duration on how long a contract lasts. It depends completely on the buyer.
This form of trading has several advantages which we will discuss later in the article.
| Broker | Min Deposit | Min Trade | Features | Regulation | Demo Account | |
|---|---|---|---|---|---|---|
|
$10 | $1 | Spread: Floating Leverage: Varies Bonus: No Mobile Trading: Yes US Trader: No |
CySEC | Yes | Free Account Read Review |
|
$10 | 0.01 lot | Spread: 0.1 Pip Leverage: 1:1000 Bonus: Yes Mobile Trading: Yes US Trader: No |
CySEC, FSC, CIF, FCA | Yes | Free Account Read Review |
|
$5 | 0.01 lot | Spread: 0.6 Pips Leverage: 888:1 Bonus: Yes Mobile Trading: Yes US Trader: No |
IFSC, FCA, CySec, ASIC | Yes | Free Account Read Review |
|
$10 | $10 | Spread: No Spread Leverage: 1:30 Bonus: No Mobile Trading: Yes US Trader: No |
CySEC, Financial Commission | Yes | Free Account Read Review |
|
$5 | 0.01 lot | Spread: 1 Pips Leverage: 1:1000 Bonus: Yes Mobile Trading: Yes US Trader: No |
CySEC, MiFID, ACIIF, FCA | Yes | Free Account Read Review |
|
$50 | 1 | CFD assets: commodities, crypto, equities Spread: floating Bonus: Yes Demo: Yes |
HCMC, FSA | Yes | Free Account Read Review |
|
$100 | 0.01 | Spread: 0.03 Leverage: 400:1 Bonus: Yes Mobile Trading: Yes US Trader: No |
ASIC, FCA, FSCA, MiFID | Yes | Free Account Read Review |
Basic CFD concepts
Long versus Short
There are two ways of trading CFD’s. Long and short. A trader will go short by selling the underlying asset. This is because they expect or predict the price of the asset will go down.
On the other hand, the trader goes long by buying units of CFD’s because they expect the price of the asset to increase.
Margin and Leverage
CFD traders don’t pay the full price of the underlying asset to open a trade. Instead, they pay a certain percentage of the total amount as deposit.
This is called margin. The ability to open large positions using only a small deposit is known as leverage.
Example: Let’s consider an online CFD trader who is interested in opening a position of a particular stock. This stock is worth $1000 and its margin is 5%. So he has to make a deposit of $50 which gives a 20:1 leverage on the asset.
Hedging
Hedging is a strategy used by CFD traders to protect against future losses. Since the market is unstable and hard to predict, traders must take protective measures to safeguard their investments.
Theoretically, hedging should reduce risk completely but we know that is not possible in a real-life scenario. In this strategy, the trader tries to neutralize his market position to reduce risk by starting a position in the opposite direction.
Let’s explain this better with the help of an example.
Example: Let’s say we purchased 100 shares of ABC Corporation each worth $10. After a week its price rises to $12. But after this, its price is expected to fall.
Naturally, we would prefer to go short and sell all our shares for a $2 profit per share. But if we start a buy position for a certain amount of shares, we can still make profits in case our prediction goes wrong. This is how hedging minimizes risk.
How Does CFD Trading Work?
A CFD trade starts when someone opens a CFD position in the market. The trader chooses the amount of CFD’s he wants to trade.
This can be a single commodity or any number of CFD’s he likes. If the price of the chosen commodity rises, the buyer makes a profit and if the price drops, the buyer faces a loss.
Let’s illustrate this concept with an example.
Consider the previous example of a trader purchasing 100 shares of ABC Corporation. Each share was worth $10. Here, the trader doesn’t pay the entire price of 100 shares and instead pays a margin of the total cost.
This margin is the deposit required to start a position. In this case, the margin is at 5%. So the trader pays $50 as a deposit.
If the price rises to $12 and the trader closes the position then he makes a profit of $200 (100 times $2). On the contrary, if the price had dropped below his buy price, he would have made a loss
Advantages & Disadvantages Of CFD Trading
Like every trading method, online CFD trading has both merits and demerits. In this section, we will list down both the advantages and disadvantages of CFD trading.
Advantages:
Unlike other trading methods, CFD assets only need a margin of the total payment. This encourages small traders to invest in CFD trading. If someone wanted to buy 20 units of a share worth $10 each, he pays $200 to buy them.
But in the case of CFD’s, if the margin is at 10%, he only pays $20 to get started on the trade.
CFD’s are traded in the form of shares, stock, currency, index etc. Unlike other trading methods that are limited to only one or two commodities.
Since CFD does not need owning the asset, a large variety of global instruments are traded from anywhere in the world.
CFD trading doesn’t have hidden fees, taxes or commissions which reduces the cost of starting a trade.
Usually, when there is a decrease in the price of assets, traders face losses. In the case of CFD’s traders can use this in their favor in the form of shorting, i.e. selling when the price is decreasing.
CFD’s do not have any fixed expiry on them. At the end of each trading day, traders can choose to continue or close the position. This allows greater flexibility for traders.
Disadvantages:
Leverage magnifies profits by a huge factor. But it also magnifies losses if the market position moves against your favor. You can lose more than you ever started with and that is not desirable for any trader.
It is limited only for short-term investment. For long-term investors, it is not practical as both cost and risk increase with the passage of time.
Due to low-cost and easy to reach market, overtrading becomes a huge problem in CFD trading. It could lead to a financial disaster as there will be less capital to recover from losses.
CFD is based on predicting the increase or decrease in the value of the CFD commodity. This prediction isn’t based on guesswork or else everyone could be successful trading CFD’s. On the contrary, successful CFD traders understand the market thoroughly.
They can accurately predict the movement of the market most of the time. However, this understanding takes years of experience and knowledge.
CFD traders don’t own the financial assets. These traders are not directly associated with the company as opposed to shareholders. So they cannot vote nor have a say in important company decisions.
Since CFD transaction is between the buyer and the seller, the risk of one side is associated with other. For example, if the buyer chooses to close a position, he depends on the seller to pay the difference. If the seller is unable to pay the amount, the buyer faces this risk as well as he doesn’t own the asset.
Costs Associated With CFD Trading
Spread
In CFD trading, when an instrument is listed, it has a buy price and a sale price. The buy price is always higher than the selling price. The difference between the buying and selling price is known as the spread.
If the spread is lower, the trader makes more value out of it. Spread costs are both variable and constant.
Example: If the buy price is $101 and the selling price is $99, the spread is $2.
Holding costs
There are holding costs for both long and short CFD positions. CFD’s can be closed or continued at the end of every trading day.
If a trader chooses to continue with his position, he has to pay a charge depending on the trade direction for ‘holding’ the asset.
The charge is positive if it’s on a buy position and negative if it’s a sell position.
Commission
This cost only applies when the trader does CFD trading using shares. This charge lies anywhere from 0.1% to 0.25% of the value of the asset.
Data fee
Traders need relevant information on the price of the instrument they’re trading in. Previous market data helps them analyze and make decisions on whether to sell or buy.
Most competitive CFD brokers offer this market data for a fee. This fee is known as market data fee. It is paid either as a onetime fee or a regular subscription fee.
What Are CFD Brokers?
To understand what CFD brokers are, we have to understand what or who brokers are. A broker is a licensed person or firm that buys and sells assets for a customer in exchange for a commission fee. The broker can also act as a seller or buyer.
CFD instruments traded with the help of a broker. These brokers are known as a CFD broker or provider. They act as a middle-man between the market and traders.
Through the trading platforms provided by these brokers, traders can buy or sell CFD assets. CFD brokers make it easy buy and sell these assets.
The platform can either be proprietary or general ones like MetaTrader or NinjaTrader.
One of the most important requirement of a CFD broker is regulation. Regulation ensures the legitimacy of the broker and assures traders to trade with confidence and with a peace of mind.
Other factors required from a CFD broker will be discussed in the next section.
CFD brokers make money from the various costs associated with CFD trading such as holding fee, commissions, and spread.
How To Choose A Good CFD Broker?
There are hundreds of CFD trading platforms available in the market. For someone who is new to CFD trading, he/she will be intimidated by the myriad of CFD brokers list that is available.
However, there are certain factors to consider and compare which can make it easy to make an informed CFD broker comparison. These factors are listed below:
Regulation
Any good CFD broker must be reliable and trustworthy. Traders will invest hundreds of dollars through their platform. Hence they must have some sort of regulation to attract traders to use their platform.
The FCA (Financial Conduct Authority) is one such regulatory body that provides authorization and regulation to conduct CFD trading.
Fee
The cost of conducting CFD trades can vary from broker to broker. A good CFD broker will charge low fee compared to its competitors.
The spreads will be tight and commission will be next to zero ideally. Usually, there is no stamp duty when trading CFDs so you don’t have to worry about it.
Platform
With the advancement of technology and internet, online CFD trading has become popular. The best CFD brokers offer a stable web and mobile-based CFD trading platform.
It must have an intuitive user interface and reliable. So it is easy for traders to access their trades anytime and anywhere.
Ease of withdrawing and depositing
The top CFD brokers make it easy and hassle-free to transfer money for traders.
Depositing and withdrawing should not be time-consuming and expensive.
Withdrawal requests must be processed within 1-2 working days without much hassle.
Offering demo account
Demo accounts enable CFD trading in a virtual environment where the real money isn’t involved. A good CFD broker will enable a fully featured demo account to its users.
New traders can practice CFD trading skills and get accustomed to the trade. Experienced traders can try out different strategies to find out what works for them.
This demo platform should mimic the real trading platform so users can get the most accurate testing done.
The range of CFD’s offered
The best CFD trading brokers should provide a wide range of CFD’s for the traders to choose from. The traders must not feel limited by the choices offered.
The broker that offers all these features can be considered as the best CFD trading platform.
Final Words
CFD has been gaining immense popularity amongst financial traders recently. It’s a contract between a buyer and a seller. There is no physical transaction of assets.
An initial deposit known as the margin is made. If the price increases, the buyer makes a profit. If the price drops, the buyer faces a loss. There are costs associated with CFD trading such as spread, a commission fee, and market data fee.
CFD has both advantages and disadvantages. Low costs, no tax fees, and leveraged returns are its major benefits. Its main drawbacks include high risk, overtrading and limited to experienced users only.
A trader must assess both the cons and pros before jumping into the world of CFD trading.
CFD brokers act as an intermediary for traders to buy and sell assets. The best CFD brokers are regulated; charge low spread fees, offer strong support for their platform and has a robust demo account.