Best CFD Forex Brokers

Contract for Difference (CFD) is a globally renowned tool for trading derivatives, which allows international currency traders and seize opportunities in the fluctuating prices of various financial markets in the world. CFD brokers provide a way for traders to profit from these fluctuations.

The currency trading instruments that are a fundamental aspect of the CFD’s functioning include; bonds, shares, indices, commodities, currencies, and stocks treasuries. Being that CFD Forex brokers allow trade on margin as leveraged products, traders can sell or buy based on the prediction of the respective fall or rise of market prices depending on the information offered by their broker firms (and they do not need to purchase the underlying asset).

Traders that use CFD trading get to forgo the cost and taxes that are accompanied by owning assets, for instance, commissions on debits and credits, account management charges, or even stamp duty. Traders use CFD to mitigate their portfolio’s exposure to risk; which it achieves by enabling their diversification that allows traders to conduct business across different markets. CFD forex brokers’ global popularity among traders arises from the various benefits they offer but the primary reason is that they help save money. This article provides our CFD broker reviews in the table below.

A BRIEF HISTORY OF CFD TRADING IN THE WORLD

The first instance of CFD trading took place in London during the 1990s. At this time, they were mainly adopted by hedge funds that sought to short-sell the market without purchasing the underlying commodities themselves. It was also a great way for these hedge funds to use high leverages and place large trades that they could easily execute in the underlying market. One of the primary motivations for setting up the CFD market was the need to evade the UK stamp duty. At the time, CFDs offered an excellent opportunity for traders to transact in 1000s of financial markets around the world while at the same time avoiding stamp duty. Although individuals could trade in the CFD markets, it wasn’t until the technology boom of the 90s and early 2000s that this form of trading became widely accepted. Since there was an increase in the number of markets that people could use to trade CFDs, this form of trading spread widely to other financial centers around the world. To illustrate the size of CFD trading, about one-third of the volume traded on the London Stock Exchange can be attributed to CFD trading.

ABOUT CFD TRADING

CFD trading involves the trading of given units of particular market instruments that includes; commodities, indices, currency pairs, stocks, shares, treasuries, and bonds among others. The selling or buying of these units depends on the CFD trader’s prediction of the rise or fall of the market prices of these instruments. The trader, therefore, does not need to buy sell, or even own the underlying asset which mitigates the cost and yet bares the potential to earn a profit.

The profit is earned based on the difference between the buying and selling prices of the units from the CFD instruments, this difference is what forms the spread. The spread, being the basic payment for CFD trading, with its narrowness determining how close a trader’s price is likely to move in their favor. Thus a trader gains more in the value of CFD units they buy or sell if the price of the trading instrument works in their favor. However, if the trade instrument’s price goes against the trader’s unit buying and selling price then there is the incurrence of loss which stretches out to the trader’s deposits.

Most Forex broker firms provide CFDs as part of their server products, some even offer it alongside currency pairs which enables efficiency since the trader does not now need to open separate CFD trading accounts for both. This article has provided a compilation of Forex CFD brokers that offer CFD trading.

It is imperative to note, however, that the regulatory bodies of the Forex market with jurisdiction in the United States prohibit CFD trading, according to the Securities and Exchange Commission, on Over Counter financial instruments. So, for international traders residing and operating within the US, this article is not for you.

WHAT TO CONSIDER WHEN CHOOSING A CFD BROKER

Although the trading of CFDs was initially done publicly on stock exchanges, their growth saw the CFD models change into proprietary CFD trading platforms that are not easily regulated. The advent of the internet and mobile technology led to a change in the CFD business model whereby the CFD market became a closed platform that is fully owned y private entities. Although there are regional and national regulators to oversee and impose restrictions on the trade, the threshold of having a license is quite low. It thus becomes necessary to conduct your due diligence before adopting any platform. Here are a couple of things to consider when you compare CFD brokers.

- Presence of a Demo account

Like forex, CFD trading can be quite a complex process that requires constant practice. Your CFD broker should allow you to try out any ideas or trading regimes that you may have but it is advisable to do this with simulation CFD trading accounts. It has been common knowledge that one needs to practice at least 10,000 times before one can master something. This also applies to CFD trading.

- Great customer support

Although this can seem like a trivial factor when choosing a CFD forex broker, it is imperative to put this into consideration when vetting the best CFD trading brokers. A key point to consider is whether your trades are executed perfectly as this might predict how often you will need to call your customer representatives. Also, confirm that the customer representatives do what they promise. Do they promise to be available ‘24/5’? Ensure that this is true as you might one day need them at odd hours.

- Minimum and maximum leverage

Another important consideration is the multiple of your initial funds. This is especially important for experienced traders who can use leverage to their advantage. One of the primary reasons why many novice traders lose their invested funds is due to the over-leveraging of capital. It is thus imperative to use this feature wisely as it may end up sinking your invested sum.

- The variability and size of spreads

It is crucial to understand the importance of the Bid/Ask spread as it will affect your profits especially if you have a high trading velocity. With CFD trading, unlike FX trading, this variable will always depend on your volume and broker. About this, it becomes necessary to communicate with your broker about the offers available and how to get them.

PROS AND CONS OF CFD TRADING

ADVANTAGES

A higher leverage

A key benefit of trading CFDs over other assets is the ability to get higher leverage in comparison to the other forms of trading. The average leverage in the trading of CFDs may be as low as 2% but the margin can equally rise to 20%. Such leverage may even go higher depending on the regulatory framework in your country and the broker used.

Access to major global markets

Unlike trading stocks or bonds, you will find that trading CFDs allows you to trade in virtually all markets. Most CFD forex brokers will give you the chance to trade products in all the world’s major markets.

Little restrictions

While it is easy to find several markets that bar traders from engaging in several practices, these are almost nonexistent in the CFD trading market. For example, you can find that your market prohibits you from shorting the market. In the case of CFD trading, however, the instruments can be shorted whenever you desire since you do not own the underlying asset.

Few-day trading requirements

It is not uncommon to find markets that require several requirements for traders to day trade. These markets may even set a limit on the amount that can be traded. CFD traders are not bound by these limiting requirements and traders can day trade at any time and with the amount that they wish. Most CFD trading accounts will allow you to day trade for as little as $1000 but the standard day trading deposit is mainly $2000 to $5000.

Variety

The ability to get a variety of assets to invest in is also a critical advantage of trading CFDs. Since you will not own the underlying assets, it becomes easier to offer a wide pool of markets to invest in. What are some of these assets? You may wonder. Treasury bills, currencies, commodities, stocks, and indices are some of the alternatives that you have as a CFD trader. A variety of trading options will not only give you the ability to diversify your portfolio but will also allow you to spread risk.

DISADVANTAGES

High spreads

Although CFDs offer a great alternative to invest in comparison to the traditional asset classes, one potential disadvantage is the high spread that traders have to pay. As a CFD trader, you will have to pay spreads in both the entries and exit which makes it difficult to get a profit from a small move in the CFD markets. Profits in the traditional markets are normally minimized by high fees, commissions, or high minimum deposit requirements. The CFD markets, however, are trimmed by the spreads that traders have to pay.

Lack of comprehensive industry regulation

Unlike the FX markets, CFD trading is not highly regulated. Most traders will select a broker solely based on their reputation, active years in the market, and financial strength. While there are several credible CFD trading brokers in the market, it is imperative to carry out due diligence before investing with a single FX brokerage firm.

FAQs

Who is the best CFD broker in the UK?

eToro, Admirals, and IG are among the top contenders for the title of the best CFD broker UK traders can use. These brokers stand out for their comprehensive offerings, regulatory compliance, and user-friendly platforms, making them popular choices for CFD trading in the United Kingdom.

Is CFD trading illegal in the US?

Trading CFDs in the U.S. is illegal, primarily because it is considered an over-the-counter (OTC) product, bypassing regulated exchanges. As a result, many CFD brokers USA do not offer these instruments to U.S. residents due to regulatory constraints.

What is a CFD broker?

A CFD broker facilitates an arrangement where investors exchange the difference in the value of financial products, such as securities or derivatives, between the contract's opening and closing. To make an informed choice, investors often compare CFD brokers based on factors like fees, platforms, and asset offerings.

Who is the number one CFD provider?

Admirals is widely regarded as the number one CFD provider, known for its exceptional services and cutting-edge features. With a reputation for offering one of the best CFD trading platforms, Admirals has earned its place as a top choice among CFD traders worldwide.

Which CFD broker provides most leverage?

eToro is recognized for offering the most leverage among CFD brokers. When conducting a CFD broker comparison, eToro stands out for its competitive leverage offerings, allowing traders to potentially amplify their gains, albeit with increased risk.

Can you make a living from CFD trading?

Yes, making a living from CFD trading is possible. However, it requires honing trading skills, discipline, consistent practice, and patience. To successfully trade CFDs online as a primary income source, traders should be prepared for the inherent risks and invest the time and effort needed for ongoing learning and strategy development.