Trading CFDs or contracts for differences is a relatively new way of speculating on financial markets, which does not involve the transfer of underlying assets. More and more people have been opting for CFD trading with the growth of online broker platforms. But a large part of your success as a CFD trader depends on the quality of the broker you’ve chosen. To make things simpler, we’ve decided to offer some tips on how to select the best CFD brokers along with a compiled list of some of the best CFD brokers to sign up with.
Select the most appropriate broker – Things to consider
1. Charges to consider
CFD brokers impose a spread on the market prices which make the CFD prices slightly different from their actual market price. You will need to determine how much spread your CFD broker applies especially since spreads for CFDs are high. Along with spreads, some brokers also charge a commission for accessing the CFD, which is usually in terms of a percentage of your trade’s profits. The commission model is actually preferred for CFD brokers since traders get to know the precise amount of profit deduction then and there. Additionally, some brokers also charge overnight holding charges for keeping trades opened overnight.
2. Number of tradable instruments offered
Since CFDs are simply a contract on a price movement, they can be applied to any financial instrument. Thus, you would want your CFD broker to offer you the most tradable instruments possible. The best brokers offer a wide range of CFDs on the US and UK based stocks, indices, futures, commodities and foreign exchange.
3. Leverage offered
Compared to foreign exchange trading, the amount of leverage offered on CFDs is much lower as the broker reduces its downside. If you’re very lucky you’ll find a reliable broker that offers leverage up to 200:1. With leverage’s status as a double-edged sword, you should exercise caution while trading with it. Given the amount of margin required for every CFD trade, the losses multiply a lot when leverage is applied.
4. Well regulated
You should always research the background of the company behind the broker before you sign up for it. With the instances of fraudulent online brokers rising in the last few years, CFD traders are advised to carry out their own thorough research before choosing a broker. A good thing to look out for in this aspect is the regulations. Make sure that the CFD broker you choose is regulated by at least one of the major regulatory bodies such as those situated in Europe or the United States. Also, make sure that the broker holds client funds in separate segregated accounts as this improves transparency.
What are some characteristics of a good CFD broker?
In short, some of the criteria that the broker you choose must fulfil include the following.
- The broker should hold an official regulation and authorised financial license.
- It should provide fast and easy withdrawal methods.
- All its payments must be executed through secure connections.
- The broker should preferably offer you a demo account to test out their features before you invest in them.
- It should provide good trading data and charts without any price manipulation.
Top 6 CFD Brokers to Choose From
Now that we know the criteria for a good CFD broker, let’s take a look at some of the best CFD brokers you can trade with, in 2021.
With a customer base stretching across Europe, BDSwiss is a regulated CFD broker that offers support in more than 20 languages. It is regulated by authorities inside and outside of Europe with users getting the option to choose. European traders can access more leverage if they choose the regulator in the Seychelles or Mauritius.
With BDSwiss you get a demo account to try out their platform before you make the minimum deposit of $100 for CFDs. It is compatible with both MetaTrader 4 and 5 and provides its own, in-house web trading platform and mobile application. You also get direct market access accounts with this broker, with the best trading execution and conditions available. It also provides quite a lot of educational resources via trading signals, coaching sessions and webinars.
Poland-based XTB is a CFD broker which is also listed on the Poland stock exchange. With branches across Europe, the broker is well on its way to acquire licenses to offer services out of Europe. With XTB you have access to more than 3000 markets, but this depends on the regulation you choose. It allows for seamless, commission-free trading of CDs along with stocks and ETFs.
At XTB there is no minimum deposit. The spreads are some of the lowest in the market. The broker provides its proprietary trading platform called xStation5. This comprehensive platform comes with a range of powerful features for trading, analysis and research. A standout feature would be the stock screener function, which helps users find out markets with certain parameters.
3. Marketsx from Markets.com
MarketX from Markets.com is an easy to use CFD broker with an efficient and compact platform. Being backed by Markets.com, one of the largest companies for online investing in the world, this broker has already amassed quite a reputation in this market. MarketX offers a lot of professional tools you won't find with other brokers. The broker holds licenses with various regulatory bodies around the world such as ASIC, CySEC and FCA.
The platform is backed by Playtech PLC which is a Long Stock Exchange-listed entity that adds a degree of trust. They provide customer fund safety under the Financial Services Compensation Scheme which ensures protection of losses of up to £85000. Along with CFDs, the broker offers over 2200 assets to trade spread across 2000 markets. You can trade CFDs in forex, commodities, cryptocurrencies, stocks and others.
4. CMC Markets
CMC Markets is one of the oldest brokers on this list which has been operating since 1989. As a multi-regulated CFD broker, CMC Markets accepts clients from around the world. However, the broker’s main customer base is in the United Kingdom where it operates under an FCA (UK) license. Just like the above broker, CMC Markets also guarantees fund safety under the Financial Services Compensation Scheme (FSCS) for more than £85,000.
With CMC Markets, you get access to more than 10000 different markets via tradable instruments such as ETFs, stocks, bonds, cryptocurrencies, forex and of course, CFDs. It offers its proprietary “Next Generation” platform which provides a host of features not found in the standard MetaTrader software. In addition to CFDs, you can also trade in spread betting products. With low spreads and no hidden fees, this broker is suited for both novice and professional traders.
Founded originally in Switzerland, ActivTrades has since moved its financial centre to London which has allowed it to be regulated by the Financial Conduct Authority of the U.K. The broker has a minimum deposit of $1000 which is a bit high compared to the others. However, its professional approach, favourable trading conditions and degree of customer support, more than makes up for it.
With ActiveTrades you get a demo account to test the platform before you invest your money. You get access to more than 450 available assets which are tradable via MetaTrader 4/5 or its personalised, proprietary software program. Spreads for this broker start from a mere 0.45 pips. Additionally, the broker offers insurance protection for client funds, up to £1,000,000.
We have all come across Plus500, which is one of the world’s biggest CFD brokers, via advertisements. Plus500 allows you to trade more than 2000 CFDs on currencies, indices, stocks, cryptocurrencies, options and commodities. Besides being multi-regulated, the broker is also listed on the main market of the London Stock Exchange.
By signing up with Plus500 you will get an easy-to-use, intuitive platform that even novice traders can grasp after some time. Its spreads are dependent on market conditions. With this broker, you can use a guaranteed stop-loss system which is an advantage for many traders. It has a minimum deposit requirement of just $100 which can be made using one of several payment methods such as PayPal, bank wire, E-wallets, and other regulated payment methods. It provides customer support on a 24/7 basis in multiple languages.
Financial institutions have used CFDs since the early 1990s to hedge their portfolios against tumultuous market conditions as well as accessing leverage. With the turn of the century and the growth of online trading, private investors have also started trading CFDs. Thanks to some of the brokers mentioned above traders have an easier time signing up with a broker, choose an appropriate CFD and start trading. Many traders also like the nature of CFDs, where they aren’t required to own the underlying asset and can simply take advantage of rising and falling asset prices. However, to make sure you’re signing up with the right broker, you should choose carefully after considering all of the factors mentioned above.