What is an important factor that you must consider when deciding which CFD broker to trade with? If you are like most people, you will probably consider the regulations, spreads and of course what leverage they offer. Brokers understand the role each of these play in attracting new traders. As a result of this, they try to find different ways of remaining competitive.
Note, however, that our scope for vetting extends way beyond leverage, regulation or spreads. We have been following and vetting different CFD brokerages and have come up with a list of what we consider the best CFD brokers, breaking down CFD trading in the process.
Best CFD Brokers
Best Brokers for Gold, Silver and Oil CFDs
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noLatest news: Gold & Silver trading ban in US
What is a CFD?
A contract for difference (CFD) is a financial product that allows a trader to speculate on the price movement of various financial instruments. When trading CFDs, you are essentially speculating on the changes in price/value. This can be commodities like gold, shares and stocks, currencies, cryptocurrencies, and even energies like oil without needing to own the said asset.
How does CFD trading work?
CFD trading is an agreement between a broker and a trader. Either party agrees to compensate the other based on the price movement of a given financial instrument. This can be described as a bet where the trader wins (earns a profit) when they get their price prediction right and lose (reports a loss) when the price goes against their prediction.
Here is an example: If EUR/USD was trading at 1.25 and the trader believes the market will go up, he/she will buy it at the current price. If the market goes up to 1.30, they are in profit, but if it skids off to 1.20, they will be losing.
What are the pros and cons of CFD Trading?
Pros:
- No physical ownership of the underlying asset
- Ability to hedge
- Low costs
- Fast execution
Cons:
- Risk of overtrading
- Lack of basic educational resources
- Regulatory restrictions
What makes a good CFD broker?
With so many CFD brokerage firms out there, how do you differentiate them? Here are some of the factors that we think you should put into consideration when vetting CFD brokers to register with:
- The number of markets offered: A good CFD trading platform should also maintain an expansive list of tradable instruments.
- The simplicity of the trading platform: An ideal CFD broker must also have an easy-to-use trading platform. Whether MetaTrader, cTrader etc
- Trading leverage: A good CFD brokerage firm should offer its traders with flexible leverage ratios.
- Regulation and reputation: Your ideal CFD broker must be registered, licensed, and regulated by a reputable financial regulatory body.
Is CFD trading safe?
CFD trading is a high-risk venture that demands a lot of understanding, willingness to learn, and patience. The risk can nonetheless be toned down to manageable levels if you commit to implementing the different risk management techniques. These range from setting up a stop loss and guaranteed stop loss for trades, prudent use of leverage, and not entering into trade position during periods of huge volatility.
CFD trading fees and commissions
Some of the most common fees include:
Spreads:
Spreads are most common with CFD forex trading. It refers to the difference between the ask price (the selling price) and the bid price (the buying price).
For instance, if the current bid price for the EUR/USD pair was 1.090 and the asking price 1.095, the spread will be 5 pips(smallest incremental difference).
Overnight (swap) fees:
Most brokers will also charge an overnight fee for all CFD positions that remain open at the end of the trading day. This is known as the swap and acts as an overnight interest.
CFD regulation and security
Different countries have varied approaches to regulating CFD trades. In the United States, for instance, CFD trading is banned. The United Kingdom has, on the other hand, embraced a raft of measures addressing CFD trades that include lowering leverage offered to traders.
Most regulators also demand that all brokers maintain separate cash accounts for the company and customer funds. And that customer funds shouldn’t be used to cover the broker’s operational expenses.
In the event of a broker going bankrupt, some brokers also offer compensation up to a certain level.
What Instruments can I trade as a CFD?
The most common CFD products include:
- Forex
- Cryptocurrencies
- Commodities
- Shares and stocks
- Bonds and options
- Energies
- Indices and ETFs
Conclusion
CFD trading has made it possible for virtually anyone to invest in the stock, commodities, forex, and crypto markets. The high leverage provided by different brokers means that you don’t need to be an accredited investor to invest in either of these markets. The advanced trading tools that can be used have levelled the playing field for both experienced and beginner traders. You only need to find the right broker, and you are good to go.
FAQs
What does going short or long on a CFD mean?
Going short involves speculating on the possibility of a particular market losing value and turning a profit if it does. Going long, on the other hand, involves speculating on the possibility of a rise in value – buying at the current price and turning a profit when it gains value. CFD brokers are good because they offer risk management tools that allow you to trade both long and short by offering specific orders that mean you can exit the market despite the direction.
How do I start CFD trading?
You first need to learn about the basics and practice in the risk-free demo-trading environment. Proceed to choose the right platform and strategy and only invest what you can afford to lose.
What is the difference between CFD trading and Forex trading?
CFD trading is a comprehensive form of trade that covers virtually every investment market and class, Forex trading is, therefore, one form of CFD trading.
How much can I make as a CFD trader?
Several factors play a key role in determining how much you make as a CFD trader. These include the choice of a broker platform and their trading costs, your CFD trading experience, and the volatility of your preferred trading asset.
In what countries is CFD trading allowed?
CFDs are currently traded in the United Kingdom, Canada, Australia, Switzerland, New Zealand, throughout the EU, Russia, Japan, South Africa and other countries.
Brokers vary in what they offer their clients, there are lots of different trading conditions that brokers will offer, below we have pulled together the best brokers for each trading condition:
- Best high leverage brokers
- Brokers with the tightest spreads
- Brokers with guaranteed stop losses
- The best CFD brokers
- Top brokers for scalping
- Top brokers for news trading
- 5-decimal trading
- Brokers with the best trade execution
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