Best CFD Broker

Here is a list of a few of best CFD Brokers in Australia.

• IG Markets
• CityIndex Australia
• MF Global
• Macquarie CFDs
• Man Financial CFDs
• E-Trade CFDs
• GFT Global Markets
• First Prudential
• IC Markets
• Capital CFDs Australia

Since arriving on Australian shores in the year 2000, CFD trading and ultimately the numbers of CFD brokers have enjoyed rapid expansion.

As a result, the marketplace has come to be particularly competitive with CFD brokers competing fiercely for market share, each offering varying degrees of service at varying prices.

Due to the number of CFD Brokers in Australia, potential traders/investors should spend some time researching to see which broker will best meet their requirements.

When trading Contracts for difference it is important to choose the right CFD provider. Generally most people look for the best commission rates, reliable trading platform, and widest product range however there are many other aspects of a CFD provider which you should consider.

Here’s checklist of the items to investigate prior to choosing your CFD provider:

1. What markets are CFDs offered on?

Some Contracts for difference providers only offer CFDs over ASX listed stocks others offer CFDs over stocks listed on many global exchanges. You need to work out what CFDs you intend to trade in your trading strategy and choose a provider that is able to offer the CFDs you plan to trade.

2. Can my CFD provider offer more than just CFDs?

Some Banks, Brokers and even CFD providers can offer CFDs but many simply ‘white label’ the offering of a specialist Contract for difference provider to offer CFDs as an additional product next to shares, futures and options. If you trade multiple products you should consider choosing a CFD provided that can service all of your needs at once, however, if you are only likely to trade CFDs, a specialized provider would better suit your needs.

3. What margins and fees do I pay?

All CFD providers have different margin requirements and fees. Generally CFD providers will charge you fees for the following:

- Holding a Position Overnight (financing) 
- Exchange Data 
- Transaction Fees (commission) 
- Trading Platform 
- Negative Account Balances

Many people look at commission charges alone without considering the financing cost that CFD providers charge when holding positions overnight. You should look at all charges holistically and take into account that most CFD providers will not pay you as much interest on your free cash as you would get from a bank.

4. What platform should I use?

Before choosing a provider you should trial a demonstration of the trading platform that they use. There are many types of trading platforms some are very simple and easy to use, whilst others are difficult and complicated. It is important to be aware that some CFD providers charge for their trading platform, in many cases these CFD providers have outsourced their technology and need to pay a third party. It is also very important to ensure that the platform that you use can offer the order types that your trading strategy requires, some platforms do not offer trailing stop-loss orders and others do not offer if-done orders. You should ensure that the platform you chose is suitable for your trading style and can offer you all of the features that you require.

5. What range of CFDs should my provider offer?

Aside from shares CFDs are offered over a variety of different instruments including foreign exchange contracts, commodities and indices. Some CFD providers do not offer CFDs on all of these instruments. You should determine whether these instruments form part of your overall trading strategy before choosing a CFD provider as this may be a determining factor.

6. What is a spread?

The spread is the difference between the bid and the ask price, typically spreads are only applied to index and foreign exchange CFDs. Crossing the spread is much the same as a paying commission, this is how CFD providers makes money from their clients trading activity. Spreads can vary from provider to provider, much like commission there is not one standard spread all providers charge.

7. What margins should I pay?

Each Contract for difference provider offers CFDs on different margin rates, these can be as low as 1 percent or up to 100 percent. The margin you pay will vary depending on the liquidity of the underlying instrument over which the CFD is based. You should be aware that margin can work in your benefit or against you. Should you choose a CFD provider that offers low margin rates you should carefully evaluate as to whether you wish to use the full amount of leverage offered to you by you by the CFD provider. Low margins should not be the determining factor in choosing a CFD provider but rather you should consider the product range offered by the provider.

8. How long has the provider been operating for?

You should ensure that your provider is well established and can offer you the customer service that as a new trader you will require.

Remmber as a new CFD trader it is important to shop around and choose a provider that will best suit your trading style.

Futures or future contracts are contracts to exchange a good or instrument at a set price on a future date. They are considered to be profitable and popular financial instruments. But they are usually relatively expensive which denies traders with smaller capitals to participate in futures trading or to have the chance to diversify their futures investments to lower their risk. However there is a flawless resolution for all these problems. It is called CFDs on futures (contract for difference).

CFD is a contract between the CFD issuer and the trader the buyer/seller where the value of the profit/loss is the difference between the current value of the asset and its value at contract. Hence if a trader opens long with 0.01 lots on CFD BRNF0 (a crude oil contract) your profit/loss would be 0.01 * the price of the future contract when you opened the position – the current price of the future contract

The nature of these great instruments is that they allow the investor to go both short and long on futures with trading volume as low as 0.01 of the original future price (micro lots) allowing traders to diversify their portfolio and buy the futures they want at extremely lower prices. That is not all. It’s also worth mentioning that futures CFD is a leveraged instrument as well who work with a broker offering adjustable leverage on these instruments can increase the profit/risk ratio as they see fit (within certain limits set by the broker), something rarely offered by traditional futures traders.

CFD on futures is a great opportunity for beginners who want to enter the futures markets with their limited funds as well as experts looking for new ways to diversify their futures portfolios and minimize their risks.

Exciting profits await any trader who can take advantage of leverage across any instrument whether it is Contracts for Difference (CFDs), Forex or Futures trading. Whilst the profits can add up the downside can be devastating. Today we’ll take a look at some CFD leveraging basics to keep you on the right side of the ledger.

The absolute basic of leveraging your CFD, Futures or Forex account come down to this. When you use a high degree of leverage, your wins will be excessive and unfortunately your losses will be excessive. There is no way to avoid this basic rule. So your goal should be to use leverage to your advantage and maximize your gains whilst minimizing your losses.

Small stepping stones to leverage success

Once you’ve been bitten by the trading bug and you land your first big win using leverage you’ll likely find this is quickly followed by a big loss. Call it Murphy’s or whatever you like, but if you haven’t experienced it already you probably will. Whilst huge profits do seem alluring its important you put your concentration into protecting your downside and minimizing the amount of leverage you use. On that note, start off really small and don’t exceed more than 2 times leverage or twice your account size. This means on a $10,000 trading float you don’t want to take total positions that exceed more than $20,000.

Keeping your trading leverage at respectable levels

Here are some basic rule of thumb advice to keep in mind when using CFD, Forex or Futures leverage. If you have little to no trading experience, do not exceed more than 3 times your account size. So on a $30,000 account you don’t want to take total positions that exceed more than $30,000. Once you gain more experience you can consider using more leverage but at the outset, don’t exceed this amount. Perhaps with a little more trading experience you can consider using more leverage but remember, leverage is a double edged sword. Its brilliant when its working in your favor and devastating when its moving against you. Stay ‘small’ for as long as possible and enjoy a long, healthy relationship with leverage.

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.

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 bottom line is trading like any form of high performing investment has a higher risk factor which matches its higher returns. If you want safety buy bonds or deposit your savings in a bank for next to no interest. Although the recent history of banking might call that strategy into question!

Your biggest risk lies in not having sufficient knowledge about your chosen investment field. It might be OK to buy a blue chip stock and then forget about it, but day trading is a hands on, in the moment activity which takes your entire attention for short periods of time.

One difference with day trading is that you control the level of risk. You decide how much you wish to invest, and how much you are prepared to lose should the trade go against you.

Most people who invest in stocks in a traditional way wouldn’t consider day trading because its too risky, but they are prepared to hold stocks even when the market falls. They just fool themselves that they haven’t taken a loss. The only difference is that they haven’t realised that loss yet. They hope that the market will come back.

But history has shown some so called very sound stocks can go all the way out the back door.

If you are prepared to study the field of day trading, when the time comes to actually take a trade you can do so from a position of being able to analyse, access and calculate the probabilities.

In trading the term mark to market means that your account shows in real time exactly how much you are winning or losing. So there is no excuse for a day trading to let a position become a big loser.

Unless, the other big risk we haven’t mentioned yet comes into play. That is you, your emotions, your beliefs, your personality and your ability to cope under pressure.

One of the riskiest things you can ever do is not know your risk. If you take a trade, your risk is the difference between where you entered the market and where your stop loss is placed plus any brokerage and tax.

This means you need to know the exact point value of any commodity or currency you are trading, if you don’t then you can’t calculate your risk. If you can’t make this calculation then you certainly shouldn’t be trading.

PS If you do not know what a stop loss is, then do not trade until you not only clearly know what it is, but you will always use them.

Contracts for Difference, commonly known as CFDs are an investment tool that is currently surging in the UK and European markets. It is an investment tool that reflects market performance of an index or share. It is a kind of buyer-seller agreement whereby they are to exchange the difference in the standing value of a commodity, currency, share or an index and the value of it at the end of the contract.

How do we know who pays who? Once the difference results to a positive amount, the seller will be the one to pay the buyer. If otherwise happens, the buyer will be losing his money, and the seller will be the one to gain. This easy and uncomplicated way of investing attracts many dealers to invest as well as companies to serve as CFD brokers.

CFDs are leveraged derivative products. They allow dealers to participate in the trading without needing to purchase and own an asset. They are also traded on a margin basis which only requires investors to use a small amount of money to take part in the trading. It takes advantage of the short-term stock market movements. It includes overlay high leverage benefits, hedging of portfolios, and ability to access global markets by just one trading account. CFD brokers apply low-commission rates and acquire gains from short selling.

Anyone that is 18 years of age and above can participate in trading CFDs as long as they have the ability as well as the capacity to invest. Most of the time, clients aiming to hedge their share portfolio and interested with short, and medium and long term investments seek advice from CFD brokers. Also, traders who are interested with CFDs are those who are intraday traders and Swing traders.

However, just like any other investment tools, CFDs also offer risk which would usually cause you to lose money more than what you had invested. So it is necessary for investors to know what they are getting into, risks involved and its sheer nature. Also, brokers of CFDs play crucial roles in the outcome of your investment, so it is essential that investors should choose the best and most effective CFD brokers. Although each investor has own requirements for brokers, they can start comparing and evaluating brokers with the basic information.

CFD broker has a low-margin requirement allowing more investments. Low commissions are also necessary since it will result to cheaper trading, existence of any other fees so as to make sure that you will certainly gain in the trade, stability and reputation of the company as well as costumer support, since it will help you forecast your potential investment with them. For those who are just starting out, better try out a demo account so that you can evaluate and test their platform offering.

Some of the known and highly recommended CFD brokers are IG Markets, InterTrader, Capital Spreads, City Index, TD Waterhouse and Spread Co.

Every investment allows you to earn money as well as loss it. The performance of every investment would depend on several factors like the market it is in, the investor, the dealers as well as the kind and nature of investment. Although choosing the best CFD brokers will put you in an advantage, it is still essential that you assess your personal goals and capabilities for you to know how equip and ready you are to face such challenges and demands of investing in CFDs.

You purchase and sell CFDs just as you would purchase shares. However CFDs are not shares but their costs will move nearly exactly as the share they cover.

For example, BHP will possess a CFD equivalent. In most instances, if the cost of BHP rises by 10 cents, then the BHP CFD will also go up by ten cents. Instead of really owning the underlying shares, you are only entitled to, or are liable for, the difference between your buy price and your selling cost.

CFDs are leveraged items. You only place up a fraction from the notional share price to manage the same quantity of shares. The leverage offered by some CFD providers could be as high as 33 times, but is usually around 20 times. This indicates that for $100, we get exposure to $2,000 value of shares.

When buying CFDs, we effectively are placing up $100 within the transaction and also the CFD provider puts up the other $1,900. The CFD supplier then gives us the same exposure as if we had gone out and bought $2000 shares on the Asx ourself.

For that privilege of basically borrowing $1,900, the CFD supplier will impose on us an interest rate. This rate is usually the cash rate plus 2% or so, or around 7.5% pa.

Now, the excellent point about utilising CFDs to hedge is that we will be sellers of CFDs. When we sell CFDs, the CFD provider will usually pay us an interest rate from the cash rate less 2% or so, or close to 3.5% pa.

Hedging with CFDs utilises the idea of short selling. When we short sell we’re trying to sell before an expected fall within the share price. Let us say you own one thousand AWB shares that are buying and selling at $6. It becomes public that management has been included in some relatively shady deals with the former Iraqi Government. You expect AWB shares to tumble in price. To prevent the expected falls, you would sell AWB instantly right?

Precisely, so you sell at $6 and get $6,000 back again into your bank account. Let us say that your hunch is right and AWB shares tumble to $4. The scandal blows over, and also you decide to purchase back again the AWB shares at $4 because they now look cheap.

Now, it ought to be obvious that by taking this quick action you have saved yourself $2,000. You still have one,thousand shares of AWB as at the start of the transaction, but you have successfully created a notional profit of $2000– this quantity is nevertheless sitting inside your bank account after the transaction is finished.

Short selling uses the precise same concept. You are looking to sell 1st, and purchase the share back later on after it falls. The only distinction with short selling from normal selling is the fact that we don’t need to own the shares prior to we sell them. Within the above example, we did not have to own the AWB shares to short sell them. With CFDs, we can simply sell them at $6, and then purchase them back again later on at $4. In this case, instead of making a saving we are producing a profit of $2,000.

So, that is short selling. We like to think of the phrase “short” in this context: “Sure, I would love to buy you a beer following work, but I’m a little short today”. Short refers to not having some thing at first.

As we said above, selling a CFD is like selling the actual shares. The idea is the fact that if we sell a CFD corresponding to the shares within our portfolio, and then the price of these shares fall, the profit from selling the CFDs will compensate us from the fall within the exact same shares we are holding.

Let’s use an example: For continuity, let us use the AWB instance above. AWB CFDs possess a leverage of 20 times. This indicates that to totally hedge our one thousand AWB shares really worth $6, we only have to put up one-twentieth of the value of AWB shares, or $300 to short sell one thousand AWB CFDs.

So we put $300 aside within our CFD accounts and click the sell button for one thousand CFDs on our CFD trading platform. For all intents and purposes, short selling 1000 AWB CFDs is precisely the exact same as selling your actual AWB shares.

When AWB falls to $4 1 month later on, we’ve of course lost $2,000 on our share position. The great news however, is the fact that the value of our CFD accounts has risen by an equal and opposite quantity. In addition, we have really accumulated some $17.50 in interest from our CFD supplier for being short! So, actually, we have created a small net profit by utilising these CFDs to hedge.

What’s the downside? Well, as with anything in life there’s one – so do not get too excited. If AWB shares rose, we would similarly make an equal and contrary loss on our CFD accounts from our CFD short position, than we would make on the AWB shares from their cost rise. In the above example, we would have lost $2,000 on our CFD accounts. This would need to be financed from somewhere else – either selling a number of our AWB shares – our straight out of our back pocket!

So, there is a trade-off for this very effective ideal hedge. Despite this nevertheless, shorter-term, targeted hedging strategies using CFDs are possibly probably the most effective methods of hedging a share portfolio.