Best CFD Broker

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.

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.

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.

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.