Best CFD Broker

Numerous have tried their luck to profit from CFD trading, but not all are knowledgeable what makes it a lucrative and profitable trading system. The key to succeeding in CFD trading really has to do with obtaining right CFD broker to deal with. Numerous haven’t realized this which makes it impossible for them to be successful in this area.

If you will be able to get access to the best CFD broker, you can assure yourself that you’ll be able to trade accordingly with the system. From here, you will be able to perform the necessary transactions needed to obtain more profit from the system. Activities involved includes knowing whenever you can trade the CFDs, which will you have to trade, place the orders you must place and what to do to make sure your expenses for these transactions are at a lower rate.

Think about first the brokers margin requirements. More often it is for about 10 percent or it then ranges from 5 to 20 percent having around ten to one leverage. If you’ll be able to come upon such percentage, you will therefore be able to gain more profit from the trading system, though, some may offer 30 to 80 percent wherein these brokers will only be capable to offer limited leverage.

Next, you must also be able to know the available CFDs to trade as well as CFDs which are shortable. Large quantity of CFDs available will likely be needed because you make use of these trading systems to trade for profit. It is essential so that you can look at these numbers and be sure that the provider you are trading with will likely be able to allow you to get access to a system that you can use in real life. Backtesting the system will be appropriate for real life testing with regards to shortage of CFDs.

Order types available should be considered to place. There are CFD trading providers which allows placing orders anytime, however some will only allow you to place orders only at market hours. Another couple of things that you have to consider are the variety of rates as well as underlying stock prices. More often, long positions may have 2 to 3 percent higher than its base while short positions might need 2 to 3 percent lower than base. On the other hand these brokers may widen the spread according to commissions so you also have to take into account this.

Lastly, as we speak of commissions, you might also want to think about CFDs one way commission that is for about 0.1 to 0.2 percent. The commission for these brokers are to cover smaller trade sizes. More often these brokers are open to negotiations so it will likely be wise to ask them from the start.

Establishing the right CFD broker early on is very important and here I will uncover the key questions you should be asking when looking to open your CFD trading account.

Always keep in mind that the majority of the CFD sales people are not traders and in fact some have never made a trade in their life. On that note, it’s fair to say they won’t be worrying too much about your personal interests, instead they’ll be focusing on getting their sales numbers up for the month.

So right from the outset you need to take control of the conversation and be armed with the key questions that will provide you with the essential information to enable you to find the right CFD broker.

One of the very first questions you should be asking is which stocks do they let you trade and on which markets? For example most CFD brokers in Australia allow you to trade the top 500+ stocks on the Australian Stock Exchange and in the UK it is usually the top 350 from the London Stock Exchange. That is ample to start out as there is plenty of opportunity in the top 350-500 stocks.

Question number 2 is what margins do they require on those stocks? Ideally you want them to provide an excel spreadsheet or webpage, listing every stock they have and the margins required. You want to be able to trade the top 200 stocks at no more than 20% margin. The margin is the initial outlay you provide in order to control the full CFD position. For example a $10,000 CFD position at 20% margin would require $2,000 cash up front as initial margin.

Question number 3 is which stocks can you short sell? Not all providers offer a large range of short saleable stocks and the brokers list should indicate which stocks can be short sold. Remember the stock market does not always rise in value, so you need to be able to profit when the stock market is falling as well.

Question number 4 is are they are Market Maker model or do they trade Direct Market Access (DMA) CFDs? There is no best model here, but certain trading strategies are better suited to one over the other. Feel free to view my other articles that go into more detail regarding Market Makers and Direct Market Access providers.

Question number 5 is do they offer free training on the CFD trading platform (the software)? Getting up to speed quickly is vital. You don’t want to have to spend weeks learning the software.

Question number 6 is what are their standard brokerage rates? Most CFD brokers charge $10 minimum or 0.1% as the standard rate.

Question number 7 is do they have 24 hour customer support and dealing support? You want to make sure that someone is available to take your call 24 hours a day if any problems arise in either the software or when placing trades.

By asking these 7 questions you will be controlling the conversation and be confident that you are getting the exact information you require.

Today we are going to have a look at the best way to control our risk when trading contracts for difference. Controlling our risk with CFDs comes down the three critical components, let’s have a look at those now.

1. Keep leverage to a minimum

2. Always use stop losses

3. Avoid stocks that have a tendency of gapping

1. Keep leverage to a minimum

The very first thing you need to consider when trading contracts for difference is the amount of leverage you use. In order to control your risk you need to keep your leverage to a minimum. Whilst it is very exciting having huge wins, protecting your losses should be your 1st priority. One of the most well-known sayings in the stock market is “if you look after the downside, the upside will take care of itself.” So the very first thing you must master is ensuring you have very small losses. If you trade at low levels of leverage your losses should never get out of hand.

So what does it mean to trade at low levels of leverage?

People who trade at low levels of leverage never trade at more than three times their account size. So if you had $5000 in your account then you would not exceed more than 2 to 3 times that amount in total positions.

2. Always use stop losses

The second point to keeping your risk to a minimum is to ensure you always use stop losses. It is only with your stop loss that your profit or loss can be determined. So prior to entering a trade, your trading plan should dictate where your stop-loss will be and the amount of risk you are willing to take on that trade.

One of the most sensible position sizing rules is that fixed percentage risk per trade. This position sizing rule ties in your risk amount with your stop-loss size. Here is how it works;

Account size: $20,000

Fixed % risk per trade: 2%

Risk in $: $400

CFD price: $20.00

Stop loss size: $1

Formula for position size = Risk per trade / stop loss size

= $400/$1

=400 CFDs on the $20 CFD = $8,000 position.

As you can see in the example above we would buy 400 CFDs of the $20 stock giving us a total position of $8000. If the position moved against us and hit our stop-loss at $19 then we would lose $400. This ensures we never lose more than a small percentage of our total account size.

3. Don’t trade stocks that gap

Lastly we need to consider the stocks that we are trading. In order to minimise our risk we would try to avoid CFDs that have a tendency of gapping. For example dual listed stocks like BHP and RIO have a larger than normal tendency of gapping. The other types of stocks that have a tendency of gapping are commodity-based stocks like gold companies Newcrest Mining and Lihir Gold. As the commodities move on the futures market overnight these stocks will gap open up or down depending on what happened the previous night.

You see the ads in the magazines, on television in the newspapers. People just like you are making a fortune from day trading. Why shouldn’t you? So you get your free trading platform, play pretend trading for a few weeks, develop a false sense of your abilities, start real trading and next thing you have blown up your account, and you limp away from trading forever.

This is an all too common scenario. Every day hopeful people are drawn to the big profits of day trading only to be disappointed and in many cases financially much worse off.

Why?

Imagine you decided to start a brand new career in an area you have little or no expertise in. You pay some money and you start this new venture with much hope, but quickly find you are not equipped emotionally or educationally to run the business. But you press on regardless because you were told that its really easy and that anyone could do it.

This is exactly what happens to many people who start day trading. What makes you think you can just pick up the skills to enter a multi trillion dollar market, full of very clever and experienced traders.

The right training.

You need the right training. Now many people want to bypass this because it may cost you a few thousand dollars. You may have to go to some seminars, do some study, and worst of all you may have to delay your entry into making money. If you don’t want to, or can’t afford $5000-10,000 for education and another $5000-$10,000 to fund your account then perhaps this isn’t the right time to start your trading career. Your education is the cost of doing business.

You know how much an university education costs, and there aren’t any guarantees that you will get the job you desire. But with a trading education you should be properly equipped to trade after 2 two or three months. Your course should provide you with DVD’s and written manuals, to suit all learning styles. You should have access webinars where you can follow live trading.

You should get a free training platform, to practice your entries, exits and seeing the technical setups. You should have access to a live trading room, so that when you start trading for real you can be guided in your trading selections. You should be given the option of an SMS cell phone alerts, so that you don’t have to be tied to your trades.

Your entire course should be covered by a full money back guarantee or a reasonable period. So that if you find that day trading really isn’t for you then you have no risk. If you are not offered a guarantee, then question their confidence in their training. You should have access to your broker at least in the learning phase to answer your questions.

You should be offered advanced training, so that you can continue to grow and develop as a trader. This is critical as you will increase your level of trading and your risk and you will need the skills to do that. You should receive as part of your training very specific stress management. Trading success is 80% emotionally, if you can’t get your head around it, you won’t succeed.

The most common question I hear around trading Contracts for Difference is what is the best time frame when day trading CFDs. Today we’ll have a look at the three most important factors to consider when finding your ideal time frame to trade CFDs.

1.What size wins compared to your losses are you after?

2.Always use three different time frames to trade safely

3.Share CFDs versus Forex or index CFDs. The Various time frames to consider

What size wins compared to your losses are you after?

One of the most critical and overlooked component to day trading success is identifying the appropriate win:loss ratio or what some people refer to as risk:reward ratio. Every day trader needs to have the idea firmly planted in their mind of how important it is to locate day trading opportunities where the chance of reward is the least 1.5 to 2 times the size of their risk.

By keeping this ratio firmly planted in your mind it will ensure you locate high probability opportunities and totally disregard the need to trade just for the sake of trading. Trading for the sake of trading not only loses you valuable time and money it can drain your confidence level to the extent that you hesitate or are reluctant to jump on any other trade. In light of this you want to select the time frame that gives you ample opportunity for profit once your setup has been established.

Using three different time frames to locate high probability day trades

It is vital for day traders to have a success ratio or the probability of winning in excess of 60%. This comes as a result of trading over a short time frame thus reducing the chance of letting winners run. In order to locate high probability set-ups that win more than 60% of the time you would be best to identify short term, medium-term and long-term time frames to put the chance of success in your favour.

If you trade using a 30 minute chart you would be best trading in the direction of the trend and having the five minute chart and one hour chart trending in the same direction as your 30 minute chart. The five minute chart will identify the early set up, the hourly chart will ensure you are trading with the most dominant trend and you can use the 30 minute chart to time your entry. The combination of three different time frames will put the odds of day trading success greatly in your favour.

Day Trading Share CFDs versus Forex or index CFDs. What time frames to consider?

Depending on the type of CFD broker you use and the charts they give you access to, you will find the best time frame for day trading share CFDs is to use the one minute chart for the first 35 to 40 minutes, then move to the two-minute chart over the next two hours and move into the close using a five minute chart. When trading Forex or index CFDs you will find ample opportunity and liquidity using anything from a one minute chart up to the one hour chart.

Futures Markets, Options Trading, Foreign Exchange (FX 0r FOREX), Contracts For difference(CFD), Exchange Traded funds (ETF). Name your day trading poison, which financial instrument do you trade, and how do you decide?

Most people come to trading through the recommendation of a friend or colleague or by attending a trading seminar. You will develop a bias depending on your initial exposures and the compelling sales pitch of the presenter.

Firstly there are no right or wrong choices. Even within brokerage houses there is much divided opinion. My brokers, all of which are very experienced differ widely. My broker trades Futures and ETF’s as a surrogate.

His colleagues express differing opinions, one only trades options, another CFD’s and then there is the Forex guy. This is not an accident as the principal has brought together a team of traders with different interests and experience. One thing for sure is they don’t change from one instrument to the other. They have learnt one system and they stick to it.

They all have valid arguments. The futures guy, says why trade a gold mining CFD or stock, just trade the futures contract. The Forex guy says why trade the futures currency contract when you can trade the FX and not pay commission, the futures guy argues back that the spread is too wide on the FX contract.

They are all right. They are each experts in their own field. This is what you need to become, if you are to succeed in day trading.

So back to you.

If you have access, I would strongly recommend that you attend a trading expo, have a look at all the methods, and importantly do not commit to anything at the expo. You need to go home and access the pro’s and con’s of each instrument.

You will also be presented with software, live trading rooms and educational packages and brokers promising you the earth. Take a step back and a few deep breaths, do not allow yourself to be pressured. Remember you have to work with these people for a long time, if you feel uncomfortable with them in a short encounter then move on. Of course you will be offered all kinds of incentives that you can only get at the show.

Don’t fear, you can get that offer anytime. Just call them say you were offered X price at the expo, if they say the offer has expired, tell them that you will only pay the expo price and that you are prepared to do so only for the next 48 hours after witch you will buy another product.

If they won’t budge on price then go elsewhere, they probably weren’t worth working with anyway.

Read trading magazines and if you attend a few seminars find people already using that system and ask their opinion

One of the most dangerous tools available to Day Traders trading Contracts for Difference, Futures or Forex is that ability to access wild amounts of leverage. Leverage is that incredible ‘double edged’ sword that gives you the opportunity for incredible gains on small amounts of money or unforgiveable losses with small amounts of money. Fortunately, when it comes to leverage, you the trader are always in control providing you know how to trade on leverage sensibly.

Is control really in my hands as the trader?

As the trader you have your trading account of say $10,000 which on some trading accounts like forex, will give you the opportunity to trade up to $1 million in total positions. This is referred to as 100 times leverage and if you think about it, is absolutely crazy and the closest thing you are ever going to experience to gambling without being at the casino.

Fortunately for those who trade sensibly, you’ll understand that you actually do control the leverage on your account and with $10,000 you could trade up to $10,000 in total value which means you are using no leverage. The key point to illustrate here is that you can trade ridiculous levels of leverage and wipe your account out overnight, or you could trade sensibly and use the leverage to your advantage.

Can I triple the results of a trading system using leverage?

When you begin using leverage in a sensible way you’ll begin to appreciate that you can maximize your returns whilst only increasing the chance of drawdown in a small way. Let’s say you had a trading system that made 10% per year with no leverage. That means on your $10,000 account you would make $1,000 gross by the years end.

Imagine then if you traded that same system at 3 times leverage, which means instead of trading just $10,000 worth of position you are now trading $30,000 in total positions. Now you simply apply the exact same trading system which historically has been making 10% per year. The main difference now is that you are using a total portfolio size of $30,000 and 10% of that figure is $3,000. When you work out your return you need to base it on your $10,000 capital since that is exactly what you have. Now you can see that you are making 30% per year instead of 10% and all you did was increase the leverage to 3 times your account size.

My trading systems drawdown is not tripled…

Always remember that trading on leverage amplifies your wins and losses. In relation to your trading system making 10% per year you may have experienced a 4% drawdown at its worst point. If you trade at 3 times leverage then you can expect that your worst case drawdown will be approximately 3 times more than the unleveraged result. As a general rule, always trade smaller than what you are currently trading at.

The competition between CFD brokers is an intense one and nearly all of them now offer incredible giveaways just to open a free trading account. You’ll get offers ranging from free education, free trading books to actual cash. So how do you decide which CFD broker is going to be best for your day trading needs?

Market Maker or Direct Market Access?

The 2 main CFD brokers you have the choice between are the Market Maker or Direct Market Access (DMA) brokers. Essentially the DMA CFD broker offers you the chance to trade the exact underlying prices as they happen in the real market whereas a Market Maker will suggest they reflect the underlying market but can in fact give you requotes. This doesn’t mean they are bad but it is something to keep your eye out for.

Which markets do you want to trade?

When starting out it is always best to concentrate on those markets that you know best and if you don’t have any experience, then stick to just one or two local markets. This way you can concentrate on what you know and potentially generate the best results. A good rule is that if you are looking to trade all the worlds markets from the one trading account then a Market Maker CFD broker would be the best generally and if you are just looking to trade direct on your local exchange then a DMA broker might fit the bill.

As you gather more experience you’ll find that many professional day traders actually have more than one CFD broker as the reality is not all CFD providers have everything you need in the one trading platform.

One of the most important things when starting forex trading is testing various forex trading platforms on the internet to select the the one that can fulfill your needs. If you are planning to use automated trading system, this step is still most important since your system still needs a tool to connect to the market.

A trading platform is software that connects a trader and the forex market by providing basic features such as live price, execute orders, and account management. The other features ranged widely depend on the creator and the purpose; some of them are built solely for certain market, the other cover forex, futures, and CFD markets. Usually, forex trading platforms are given free by the brokers when you use their services. It can be comes in two forms: online platform or a software that you must download and install to your computer. These days, these brokers software has quite complete features; at the very least they are all support basic charting which is the bread and butter of forex market analysis. Due to various circumtances, you can’t always use the one from your broker; for instance: if you utilize Expert Advisor (EA) or forex robot, you must have it run under Meta Trader 4 (MT4), a popular trading platform.

So, what do you need from these forex trading platforms? These are some things that a platform should have:

1. Easy access to your account information as well as orders summary. The important thing is it should display real time value of your account based on your current open position. Example: if you close your position at the current price, your account will get profit/loss by 20 pips.

2. Easy access to the currency pair that you want. It should give you real time valid updates on the currency movement and quick live chart for analysis purpose.

3. Easy to execute orders. When get the right entry/exit price, you won’t have time to click various menu or buttons across the platform interface just to execute an order. The means to execute order has to be accessible by various ways.

4. Quick and accurate to execute order. Some forex trading platforms can’t fulfill these requirements on a steady basis. Usually, the problem is the software won’t execute the order that you have given; it will display the ‘waiting’ status while the market price keep moving and make you lose potential profits. This can be due to connection issues which can also be experienced by a credible broker, but there is also other probability: your account is in a scam brokerage. These brokers are designing their forex trading platforms so it will make it hard for you to have a winning trade or proper risk management. Sometimes it will not execute your stop loss order with various excuses afterwards. If you have experienced this again and again, just withdraw your account and find another broker.

Aside from scam brokerage, there are still many credible forex trading platforms that owned by honest forex brokers; just go with a recommended broker and you will be fine. The interface of the platforms might different for each broker, but as long as it is fulfill the four requirements mentioned above, it should serve you well.

There are several reasons you may want to find a stock broker. You could be looking for a job, wanting to invest internationally, or simply switching stock brokers because you don’t like how you were serviced by your previous broker. To be better prepared, here are a few things you should know (and have available) before making that call:

Finding A Domestic Stock Broker:

1) What is your available capital currently?

2) Your net worth, liquid net worth, and any income you stand to gain – such as a bonus. You do not have to disclose all of these, but it helps for YOU to know them about YOURSELF!

3) What you want the broker to do for you: make stock picks, give you overall financial plan, help you with a certain asset class, be available to talk to you by phone whenever you call (or will e-mail suffice), if you need “hand-holding”, offer your direct access to the markets (like daytrading software), give you research reports, etc.

4) What is your risk tolerance? Your broker needs to know this for the “Know Your Customer” rule.

5) Does your broker need to be local so you can meet face-to-face?

6) What is your experience in the markets, especially the assets/derivatives in which your broker specializes? Your broker needs to know this for the “Know Your Customer” rule.

7) Are you familiar with the choices for order routing and extra transaction costs (e.g. ECN fees)?

Finding An International Broker (in addition to the items listed above):

1) Know the specific reasons why you need to contact an international broker.

2) Are you aware of any legal constraints about your investing internationally?

3) Are you aware of the risks due to currency fluctuations?

4) Are you aware of any additional taxes you may pay after liquidating positions internationally?

5) Are you aware of all transaction costs?

6) Do you know how to instruct your broker on how to “mark” your order, such as with a CFD designation or execute the order only during the “auction market” session?

While these questions are rather basic, and there are many more basic questions, they hopefully will serve as a reminder of what you need to determine BEFORE calling a brokerage firm. Answering these questions will go a long way toward making you educated so that you find a stock broker right for you.