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The best CFD broker will certainly help in successful investing. But how to choose one? This is the first and also one of the most important questions that a novice investor asks himself. In order to be able to choose a reliable and honest broker that will support the investor on the way to profits, it is necessary to pay attention to several aspects of CFD brokers.
The best CFD broker – what to consider when choosing one?
Initially, CFD trading was carried out on the stock exchange in a public way, but the growth of them has caused CFD models to change to platforms. Although there are national and regional supervisory and regulatory bodies, as well as imposing restrictions on trading, the threshold associated with licensing is relatively low. For this reason, it is advisable to take a close look at selected brokers before using their services. What is worth considering?
- Demo account – just like Forex trading, CFD trading is a rather complex process that requires practice. The best CFD broker should give their clients the opportunity to try out any ideas or trading regimes they may have, but ideally they should be able to do this with a demo account,
- Good customer service – while this may seem trivial, clients should consider this factor when looking for the best CFD broker. What is important is whether trades are executed as they should be. This allows the trader to predict how often he will have to contact the customer service of the chosen broker,
- Minimum and maximum leverage – this is an important issue that concerns the possibility of multiplying the initial funds. This is important especially for novice traders, who can use leverage to their advantage. However, it is worth remembering that CFD trading is fraught with risk, and most traders lose their funds precisely due to improper handling of leverage. For this reason, you should use it wisely,
- Volatility and size of spreads – a trader should understand the importance of the Bid/Ask spread, as it will affect his profits.
The best CFD broker – which one?
If a novice trader does not want to decide on the choice of a CFD broker on his own, he can use the available tools, such as the ranking of CFD brokers. Such lists are prepared on the basis of the most important criteria for each trader, such as:
- the number of available assets,
- the amount of fees for making transactions,
- expansion of the platform,
- additional features.
This is one of the most popular CFD as well as Forex brokers, which was created in 2007 in Israel. It is a broker that is characterized by high security, provided by reputable financial institutions. These include entities such as CySec of Cyprus, FCA of the UK and ASIC of Australia.
However, the eToro broker has many more advantages. With its help, a trader can invest in nearly 2,300 assets, which can be found in Forex (read also: Forex investments), commodities, stocks and cryptocurrencies (read more: Investing in cryptocurrencies). In addition, in addition to CFDs, the trader has at his disposal ETFs, synthetic stocks, as well as real cryptocurrencies. So trading CFDs on eToro is fast and convenient.
As for costs, eToro also excels in this regard. The costs an investor has to pay for trading cryptocurrencies, currencies and CFDs are low, and when it comes to buying and selling stocks and ETFs, the investor doesn’t have to pay anything. The only downside is that withdrawals at this broker cost $5.
And what kind of trading platform does eToro offer? It is certainly easy to use and features an original design. The broker offers its users extensive copy and social trading. Social trading allows traders to interact with other clients of the broker, and with copy trading a trader can copy the movements of a selected trader. The CFD trading platform will then automatically mimic his movements, and thus the trader will earn money from CFD trading based on the experience of another trader. eToro is by far the best CFD broker.
Libertex is a CFD broker that has been on the market since 1997 and already operates in 110 countries. In this case, security is supervised by CySEC. The broker offers users a set of about 200 assets that can be bought and sold in the form of financial instruments, which are precisely CFDs. Although the offer may seem small, in fact few investors will take full advantage of it.
It is worth knowing that Libertex is a broker that does not make money on spreads. All of its profit is contained in the commission, which is often beneficial. When it comes to CFD trading, many traders will like this solution. In addition, there are no fees for making deposits and withdrawals.
And what about the trading platform? Depending on preferences, traders can opt for Libertex’s proprietary platform, but the broker also offers access to the MetaTrader 4 platform. The former is more accessible and will work well for beginners, while the latter will be suitable for professionals (read also: Forex for beginners).
This is a company that has been operating for a relatively short time, as it was established in 2016 in Belarus, but it also has offices in Cyprus and London. This assures the investor that this is a good CFD broker that is subject to the relevant regulations, such as CySEC and FCA. This broker offers a very wide range of assets – more than 3,400, which a trader can trade with CFDs.
With such a number of assets, the trader can trade on all major financial markets. The broker includes its costs in the spread, which is really low for most assets. Only in the case of some exchanges and securities, the costs approach the average price, prevailing on the market.
In addition, this broker does not charge non-trading commissions, such as withdrawals, deposits or inactivity. As for CFD platforms, the trader has a similar choice to that of the Libertex broker. Either the trader opts for Capital.com’s proprietary platform or chooses the renowned MetaTrader 4. Option number one is more modern, while the second is associated with a number of analytical tools.
This is one of the safest CFD brokers, as it has its own shares on the stock exchange, so every user has an insight into the financial statements. Besides, Plus500 is regulated by the FCA and ASIC. Only CFD trading is possible with this broker.
Traders can take interest in more than 1,200 assets in various financial markets, including Forex, cryptocurrencies and commodity exchanges. For beginner or intermediate traders, this choice will be quite sufficient.
As for the cost of trading, the matter is not clear-cut. This broker includes its remuneration in the spread, which in the case of Forex is relatively low, but is it about CFDs on selected assets it sometimes exceeds the industry average. It all depends on what the trader wants to trade.
As for the advantages, one of them is certainly the lack of commissions for withdrawals and deposits. Also noteworthy is its CFD platform. It features an innovative design and ease of use, in addition to offering a wide range of analytical tools. Both beginners and advanced investors will be satisfied with it. For many people, therefore, it may be the best CFD broker.
This is a Polish broker that was established in 2002 and, like the Plus500 broker, is listed on the stock exchange. This allows its clients to see its financial statements. In addition, its activities are monitored by as many as a dozen authorities from the countries where the broker offers its services. Among them is the Polish Financial Supervision Authority.
XTB offers more than 2,000 assets and not only in the form of CFD contacts. The trader can also invest in some of the assets in a synthetic form. This makes the choice strongly diversified. With fees, however, it can vary. In the case of the basic version of the account, the broker often offers users medium and even high trading cost. Among the positives, it is worth mentioning that ETFs and stocks can be invested in for free up to a certain limit (read also: How much money can you make on stocks).
Trading CFDs with this broker can be really profitable, as deposits for free, as well as withdrawals above EUR 100. The trading platform offered by XTB, on the other hand, is their proprietary version. It is comfortable and convenient to use, in addition to offering a wide range of helpful tools. The XTB broker also offers an extensive knowledge base for its clients.
This is one of the oldest brokers operating on the financial market. It is listed on the London Stock Exchange, which makes it highly trusted by many traders. It is subject to many regulations with branches all over the world.
With IG broker, you can trade on more than 16,000 markets. It provides various trading platforms, including those designed for professional trading with direct access to the market. Besides, a trader can trade various financial instruments, such as options, cryptocurrencies, Forex, CFD contacts, stocks or bonds (read also: Investing in stocks and bonds).
IG is the best CFD broker in terms of training and education offered to clients. This allows investors to learn about the best investment strategies and get a good education free of charge. The broker offers a free forex demo account, as well as low spreads and no hidden fees.
Vantage Markets is a company that was founded 10 years ago and is based in Asia. This CFD broker has several regulators in the Cayman Islands and Australia. In addition to high security, it offers trading with unaffordable amounts of money. A user of this broker can enjoy high leverage, reaching as high as 1:500. This means that all position sizes are divided by 10.
Vantage Markets offers the trading platform Meta Trader 4 and Meta Trader 5. It also offers relatively low spreads, but then you need to deposit a minimum of $500.
This is also an international broker that allows CFD trading. It offers a platform that is user-friendly and easy to use. It also offers many analytical tools. A trader can start with a free demo account or deposit $10. The minimum investment for one trade is $1. IQ Option offers more than 500 markets where either CFDs or other financial instruments can be traded. In addition to good terms, the broker offers 24/7 support in different languages.
This is one of the largest companies on the market that deals with online trading. The software of this trading platform is attractive and user-friendly, and if a trader wants to use a more professional platform, he can use MarketsX.
This broker is owned by Playtech PLC, which is listed on the London Stock Exchange. This indicates high security and trust. The trading platform it offers is suitable for beginners. New traders can use a free demo account to test it. In addition, the broker offers a wide range of financial instruments on which traders can trade.
Read also: Online stock market simulator
The best CFD broker should be reputable and secure, which is why ActivTraders is also on the list. The company was founded in Switzerland and later moved to London. It is regulated by the FCA, like most brokers there.
This broker offers professional software, as well as support for its users. Although the minimum deposit is high, as it is $1,000, its services are of a high standard. In order to test the platform, you can open a free demo account. In this case, spreads start at 0.45 pips, and financial security is really high. In turn, insurance coverage is up to GPB 1,000,000.
This is a very well-known brand that allows, among other things, to trade CFDs since 1989. Besides, it mounts on the London Stock Exchange, which proves its safety. This CFD broker accepts clients in various countries of the world and is subject to many financial regulations. The customer shit base is located in Europe, where the company is managed under an FCA license.
User funds are managed by large international banks, which are characterized by high liquidity. The company’s history depicts that the user base and client revenues are constantly growing.
Investors can transact in a wide range of financial instruments, such as bonds, cryptocurrencies, currencies, stocks, ETFs, etc., which are available on the modern “Next Generation” platform (read more: What is the best currency to make money on and Investing in ETFs). This is a much more professional platform than the extremely popular Meta Trader 4.
What are CFDs?
CFDs are otherwise known as contracts for difference. With them you can invest in certain assets. However, the trader does not become their owner. Instead, he speculates on the rise or fall of their price. Thanks to them, the trader can gain access to short positions and their leverage. Leverage, on the other hand, makes it possible for the trader to maximize his profits, even in the case of small price changes, as it acts as a multiplier.
CFD trading – tips
Making money on CFDs is fraught with high risk. The large losses that are recorded are primarily related to the excessive use of leverage by investors. Counting on a quick and easy profit, you can unfortunately lose a lot.
CFD trading should not be treated as gambling. Instead of counting on luck, it is worth preparing for it properly:
- Knowledge of the market where the trader decides to invest. By doing so, he will be able to understand how it works and better predict future price changes,
- Selection of 2-3 assets to start with, in which the investor will specialize. It is best to bet on popular stocks and currency pairs. A successful investor knows what he or she is putting his or her funds in, because with this knowledge he or she is able to react in advance to emerging market changes,
- Creating an investment strategy and sticking to it – this way the trader will know how to react in a given situation and will not make decisions under the influence of emotions,
- Using a demo account – before a trader starts trading CFDs, he can test new trading strategies on a demo account and learn how to trade if he is just starting out. The best CFD broker will certainly provide a demo account for free, so it is worth boldly using it,
- Using defensive orders – these types of orders, such as stop loss, are able to protect the investor’s capital with too large losses. Take profit, on the other hand, allows you to secure profits.
These are some useful tips that every novice trader should use. Before entering the market, he should thoroughly understand the specifications of CFDs and how they work.
The broker’s operating model
It is worth knowing that brokers operate in different systems, and on them largely depends the way, as well as the profitability when trading CFDs. For this reason, a trader who is considering the choice of a broker must take into account the type of broker.
Marker Maker (MM) is the most popular type of broker for both CFDs and Forex. It is a market maker, that is, it does not send traders’ orders directly to the exchange, but executes them in the area of its platform.
For example, if one user sells a certain asset and another wants to buy it, this broker pairs them. However, if he is unable to find such a pair, he himself becomes the other party to the transaction.
CFD trading in such a case is associated with a conflict of interest, because the win of a certain customer is associated with the broker’s loss, and this sometimes leads to inappropriate behavior on the part of the investment platform.
But Market Maker is still a good choice with many positive sides. It is characterized by high liquidity and a low entry threshold. It is also usually associated with low fees, associated with CFDs. For this reason, it will be the best CFD broker for beginners.
STP – Straight Though Processing
This type of broker only deals with the transfer of users’ orders to the interbank market and only on this it takes a commission. Therefore, there is no conflict of interest in trading CFDs in this case.
ECN – Electronic Communication Network
This type of broker is very similar to the STP model and only transmits orders to the interbank market. In this type, however, the initial deposit is much higher, there is less leverage, and larger possible price differences.
For this reason, an ECN broker is not the best choice for beginners or those with little capital.
The best CFD broker – legal supervision
To choose a good CFD broker, it is also worth paying attention to security issues. For this reason, it is important to check who exactly regulates the particular company to which the investor wants to entrust his money.
Broker registered in the European Union
Recently, the most popular is the registration of the company in Cyprus, and there the supervisory authority is CySEC. Supervision by Cyprus-based authorities is usually typical for large international companies. However, these companies must be registered in a European Union country, so they can provide services throughout the European Union.
A broker that is registered in a so-called tax haven
When choosing the best CFD brokers, the investor must pay attention to the lists of fraudulent service providers that are available on the web. In particular, it is dangerous to place funds in so-called tax havens.
Types of accounts at CFD brokers
After choosing a broker’s operating model, as well as its legal regime, the next element to check and choose is the range of accounts that a certain company offers, as well as the translation terms that are available on it. It is necessary, first of all, to take into account:
- the amount of the initial deposit,
- trading conditions,
- the possibility for investors to use microlots,
- available bonuses.
Types of CFD platforms
The brokers you can use to trade CFDs offer different trading platforms. Some of them provide clients with proprietary platforms, while others use ready-made ones. Which ones are noteworthy?
This CFD platform has been on the market since 2005 and is one of the tools most often chosen by traders. It is made available to many intermediaries by MetaQuotes Software, a Russian company specializing in the development of software, designed for currency trading.
Meta Trader 4 will convince both experienced investors and those who are just starting their adventure in trading, as it is clear, intuitive and extremely easy to use. It is not loaded with many advanced features, but rather focuses on the main and basic tools that a trader always has at hand. The Meta Trader 4 CFD platform is also popular because it uses a simple programming language, so anyone can write a trading machine.
The proprietary xStation 5
Another popular platform designed for Forex and CFD trading is xStation. It is a proprietary platform that was created in 2011 and has been improved over the years. It is very popular among customers and has been awarded many times. It allows users to access a variety of technical and fundamental analysis tools, statistics, commentary or macroeconomic calendar.
xStation is available in 3 versions – as an installation for the computer, a platform in the web browser and an application for mobile devices. It is an innovative tool that is equipped with many advanced features
Meta Trader 5 platform
This is a younger version of the Meta Trader 4 investment platform, which was established in 2009. More features have been added to this model, which are sure to be useful to the trader, such as a macroeconomic calendar. Despite the fact that it is supposed to be a better version of Meta Trader 4, it was rated slightly lower.
CFD broker’s analytical offering
This is a very important support that a service provider can provide to a trader. Educational support and training and courses are much needed, especially if it is provided by analytical companies that are independent of a specific CFD broker.
The best CFD broker should offer access to training and analysis, but also who creates it. This is an issue that an investor should necessarily pay attention to.
Other elements of the CFD broker’s offer
The above-mentioned elements are the main and basic issues. However, brokers also have various add-ons that effectively diversify traders’ daily investments. When deciding which service provider to choose, it is worth checking whether it has the following additional features in its binary offer.
You may also read: Making money on forex
Bonuses are one of the more interesting additions to the standard offer of brokers, which favorably affect CFD trading. Bonuses allow access to additional funds, which are added to the trader’s account by the broker.
Depending on the specific offer, they may be withdrawable or increase the number of funds in the account. This will allow the trader to open larger positions in the account.
PAMM accounts are one of the additional features that allow traders to enter the market. Under this account, the trader entrusts his money to a more experienced person who manages it and receives a certain remuneration on the profits made.
IB, or Introducing Broker
Under this arrangement, one client refers another client and from this he is remunerated, depending on the turnover carried out in the account by the referred person.
FAQ – some important questions
Here are some quick and key questions that every novice trader should know the answer to.
What is a forex and CFD broker?
CFDs are a type of derivative financial instruments that allow you to invest in assets, but the investor in this case does not become the owner. Instead, he has leverage and short positions at his disposal. In the same way a trader can invest in Forex. A Forex and CFD broker, on the other hand, is in a sense an intermediary that allows traders to make investments.
Which CFD broker is the best?
On the one hand, this is a strongly subjective question. However, it is worth choosing the type among well-known and reputable companies. This is a guarantee of safety and quality service. The best CFD broker is one that charges unaffordable fees and costs, and at the same time you can safely use its services.
How much money do you need to have to start trading CFDs?
Contrary to appearances, a beginner trader does not need to have a large initial capital at all. Many brokers require a relatively low deposit, so it is enough to have a few hundred zlotys to enter the market.
Basic concepts related to CFDs
The concepts that every trader should know before trading CFDs are:
- Opening a CFD contract – this is the opening of a transaction to buy or sell a specific asset at a certain volume,
- Closing a CFD contract – is the closing of an open position of a selected asset,
- Position/order – is a transaction to buy or sell a specific asset at a specific volume,
- CFD contract volume, or lot – is the number of units of a specific asset that the investor intends to trade with the help of a CFD contract,
- CFD trading on the stock exchange – is the execution of purchase and sale transactions with the help of stock exchange instruments,
- Opening a buy position – is the opening of a given transaction for an increase in the quotation of a specific asset,
- Opening a sell position – is the opening of a position for a decrease in the quotation of a specific asset,
- Modification of the open position – this is the modification of the stop loss and take profit levels of the open position. These levels are set in the trading terminal to automatically close the open position if the price reaches specific values, with either a loss or profit for the trader,
- Closing an open position – this involves determining the profit or loss on the open position. Such closure can be done either automatically or manually,
- Margin Call – people who are interested in CFD trading should be familiar with this term. This is a request by the broker to fund the account, which is caused by a large unprofitable position of the trader. In such a situation, if the trader does not take certain actions and his loss continues to increase, the broker will independently close the trader’s open positions.
Markets where CFDs can be traded
A trader can trade on the following markets:
- Stock exchange – as defined, the stock exchange includes the area of trading stocks, ETFs and stock indexes (read also: Exchange-Traded Funds),
- Metals – it is possible to trade CFDs on metals traded on the stock exchange. This includes silver, gold, platinum, palladium, copper, etc, (read more: Gold investments)
- Energy, which is the market for natural assets that are used to produce energy,
- Agricultural and tropical products, e.g. cotton, cocoa, coffee, sugar, juice helps, etc. The development of agricultural product prices is strongly dependent on the relationship between the follow and demand,
- Currency indexes and currency pairs – usually a currency index is built around a specific currency (read more: How to invest in currencies online and How to invest in stocks). This provides a broader assessment of its strength and weakness against a group of other currencies,
- Bonds – the most popular bond CFDs are the US T-Note o the German Bund,
- Cryptocurrencies – CFDs allow you to make money on the digital currency market.
CFD trading – advantages
The best CFD broker gives you the opportunity to trade CFDs on many different markets. And what are the advantages of trading CFDs themselves?
- The ability to trade both when the price is rising and when it is falling. CFDs allow you to open buy as well as forex
- ell positions, and thus allow you to make money both when prices rise and fall,
- No hidden costs – the terms and conditions of CFD trading are usually posted on the service provider’s website in a clear and transparent manner. Besides, they can usually be found in the trading terminal in the “Specifications” section,
- No ownership of trading assets – when deciding to buy CFDs on gold or oil, the trader does not get them in physical form (read also: Investing in gold). Therefore, he does not have to worry about where to store these commodities or metals, to whom to sell them later, etc. According to the definition of CFDs, they are designed to take advantage of the difference between buying and selling,
- The ability to open positions on expensive financial instruments – the use of leverage allows traders with a small capitol to buy trading instruments they could not otherwise afford,
- Access to a sizable number of assets with a single trading account – thanks to the use of modern trading applications, CFD trading involves managing all open positions with a single trading terminal. This saves the trader time in opening, modifying and closing orders and facilitates his complex collation analysis, requiring comparable assets on 1 platform,
- Increase profit potential by using leverage – leverage allows a trader to open more positions than he would be able to open with his own funds. Professional traders use leverage to increase the number and volume of positions traded, and this can be associated with generating more profit for them. It should be noted that along with the increase in income potential, the risk of partial Sonia total deposit loss also increases. Trading with CFDs always involves a certain amount of risk, so any investment decision should be thought through beforehand. It will also be helpful to have the best CFD broker to facilitate the transactions.
Risks and drawbacks of CFD trading
The risks involved in CFD trading are:
- Risks of leverage – the use of leverage can increase the investor’s profit, but it also increases the risk of losing capital,
- Risk of market volatility – the volatility that occurs in financial markets is a natural phenomenon that occurs with any financial instrument (read more: Forex market and Online forex). This high volatility is associated with high risk, especially when using high leverage,
- Speculative nature of the transaction – CFD trading, as defined, is aimed at creating profit, not at owning a particular asset or security.
Investment risk can be reduced in some ways, using effective methods to do so. One of them is diversification of the investment portfolio, that is, investing in different assets. Another is to constantly expand your knowledge, related to investing, and to invest funds only in well-known financial products and learn in advance on a demo account.
CFD trading is becoming increasingly popular. To engage in it, it is necessary to use the services of a broker that provides a trading platform. With its help, a trader can make trades, but not only. The best CFD broker should be characterized by relatively low fees, but also security. It is worth choosing only from among well-known companies.