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Best CFD Brokers

To make choosing a reputable CFD broker as easy as possible for you, we have created an overview with the most important facts here.

– Table Of Contents –

What criteria should a CFD broker meet?
Minimum deposit at a CFD broker?
What should a good CFD broker offer?
What order types are offered?
What is a limit order?
What costs are incurred for CFD trading?
How exactly does CFD trading work at the brokers?
What does long and short position mean?
What is the leverage?
What is a fixed spread?
Adjustment of the spread
What is a variable spread?
Are CFD brokers regulated?
Is there a loss protection with the CFD broker?
What is the benefit of a CFD broker demo account?
What are the advantages of CFD trading?
What are the risks of trading CFDs?
Are CFDs gambling products?
What are CFDs suitable for?
Training opportunities
CFD trading accounts with brokers
What rules should traders follow when trading CFDs?
Hit rate in CFD trading

What criteria should a CFD broker meet?

With CFD brokers, a demo account is in the first place. This should of course be free of charge, so that especially beginners can learn trading with CFDs. It should also be ensured that the respective broker has a training program in which you can gain essential experience, because trading with CFDs basically follows its own rules. Of course, a broker should also bring the tools for chart analysis right away. Thus, the customer is not dependent on external providers, which causes additional costs.

Low trading prices

Also, the trading prices should be set relatively low. The relevant information can usually be found on the broker’s site and should be generally available for viewing even before registration.

Height of the leverage

Another criterion is the amount of leverage. The ratio should not be less than 200:1, because most trades are financed through leverage.

Amount of the PIP

The pips should also not fall below a certain value. This should be at least 0.8.

Minimum deposit

With some providers, an account can also cost money. Here it depends on the amount of the minimum deposit and whether you have to pay an additional administration fee for the deposit. As a rule, this is not the case, so you should avoid fee-based offers of this kind. However, there is another point to consider with CFDs. Some brokers charge a fee for maintaining an account. This is very often based on the amount of trades that are processed in a certain time. As a rule, if available, a minimum deposit of about 200 euros can be expected. This ensures smooth trading, so that returns can also be achieved. Brokers with even higher minimum deposits, from about 1,000 euros, are usually only suitable for professional trade, because here the contracts can be very expensive.

Support

The support should also be extensive and the broker should be available at any time for questions from its customers.

What should a good CFD broker offer?

CFD brokers offer a wide variety of features with which their clients can trade. Most important are real-time charts and quotes. Thus, the trader always has the current values at hand and can quickly respond to changes in the market. Also important is the possibility to execute a reverse order, i.e. to withdraw a contract. This may be necessary under certain circumstances, if a deal CFD broker compareus was set by mistake. Very good brokers also offer technical analysis tools. Using these, buy signals can be quickly identified and chart analysis can be performed, which can be used to predict the trend of a particular underlying.

In addition, functions should be included with which the so-called one-click trading is possible. However, this function should only be used by traders who already have experience with CFDs. With the one-click principle, the transaction is completed immediately without further settings. Not absolutely necessary but still very useful can also be a pip calculator.

With this can be calculated in advance, which changes in the yield, by the increase or decrease by one or more pips, result. Thus, both losses and gains can be calculated exactly. In this way, a much more accurate investment strategy can be developed. A useful function, which is only offered by a few brokers, is the creation of trend lines. Through these, a stop can be set, so that the entire invested capital is not lost, should a trade once turn out negative. It should be noted at this point that there are other functions. However, these are only offered by a few brokers. In most cases, these are also special premium offers.

Which order types are offered?

As a rule, CFD brokers offer four different order types. Here you can choose between a limited order, the stop order, the IF-Done order or the OCO order. A separate section will be dedicated to the limited order, as there are some important criteria to consider when buying and selling.

  • For the stop order, you can choose either stop-loss or stop-buy. With the stop-loss variant, the order is executed only when the respective derivative has fallen to a certain value. This minimizes the risk of losses. With Stop-Buy, the order is started only when the respective item has reached a specified maximum value.
  • The IF-Done order works similarly to the Stop order, but this type of order can be traded short or long. With the stop order, only long is possible. However, the principle remains the same.
  • With the OCO order, the trader can also hedge in both directions. A sell order can be placed when the price rises. If this is reached, the order is automatically triggered and the hedge for a falling price is canceled. Should the price fall, this happens the other way around.

At this point it should be noted that there is also a guaranteed stop order. This is used when a position is held beyond the trading day. If the market opens the next day with a worse price than it closed the previous day, the guaranteed stop order is automatically executed.

What is a limit order?

Like the other order types, a limit order is offered by all brokers and is also popular among traders. A limit order offers the possibility to set a price or rate limit. Only from this limit the respective order will be executed.

With a Kuaf order, this limit should of course be set low in order to acquire a position at a favorable price. In the case of the sell order should be traded exactly the other way around. Here, the value should be high in order to achieve a corresponding return. The biggest difference to the other order types is that only one direction is possible in each case.

It can be decided thus only for a rising or a falling course. Since this can then be held indefinitely, the brokers usually charge a corresponding fee for the setup. Nevertheless, many traders like to use the limit order, because it limits the risk of a trade and increases the chances of a profit. In this case, the limit order can be executed at the customer price or at even higher values. This decision can be made by the trader during the term. In this case, as a rule, no further costs are charged.

What are the costs for CFD trading?

The cost of trading usually depends on which underlying is traded. The most important point for the cost is the spread. This is measured in pips. The pips show the fluctuations of the price. The respective costs are therefore quantified according to how strongly the pips rise or fall. Most brokers, however, do not charge their customers separate costs, but offset them against the expected return or let them flow into the margin payments.

For commodities and indices, these are included in the spread anyway. In addition, there are transaction costs. These are charged by the brokers in different amounts. Especially for stocks, these fees are charged according to the specifications of the stock exchange. As a rule, the value is 0.1 percent of the trading volume, so that the costs are relatively low. At most, this value can amount to 12 euros.

Another point are the financing costs. These are charged when a spread is held overnight, i.e. until the next trading day. A seller, on the other hand, even receives financing proceeds. The amount of the financing costs results from the current interest level of the respective currency zone and the interbank rate. Thus it is meaningful that this is determined in the apron. The last cost item is foreign currency costs. These are charged as risk compensation when buying or selling.

How exactly does CFD trading work with brokers?

CFD Broker testAnders than trading on the stock exchange, trading at CFD brokers is very easy. After setting up the account, all the necessary information is displayed on the broker’s web interface. This is the so-called chart. This is presented graphically in the form of a curve.

With some brokers, a corresponding software must also be downloaded. This is usually free of charge, but it should also be mentioned that some brokers charge additional but one-time fees for this. From now on, trading can be done quite easily. By a simple mouse click, the trader decides above additional lines or trend channels would like to show.

All this provides additional information on which to decide whether the value of a derivative is rising or falling. Now it is possible to decide for a rising or falling price. In addition, the trader can select the appropriate order types. Through the graphical representation, the trader can always see the current status of the position, and if necessary, withdraw the order to minimize losses. Many brokers also offer apps for mobile devices such as smartphones or tablets. In this way, trading on the go is also possible at any time and the trader can keep his current positions under control.

What does long and short position mean?

The long and short position denote the trader’s and the seller’s position respectively. In a long-short, the trader takes the position of the buyer. In other words, the trader acquires a position. In case of short, he is in the position of the seller. So he offers a position. In CFD trading, the long position refers to a trader who profits from the increase in value of a particular derivative. Conversely, a seller who holds a short position speculates on a falling price of the respective position. However, it must be noted here whether the characterization of long and short refers to the derivative or to the trading value itself.

However, there is a special case in this context. All transactions that are used to neutralize a previously open trading position are referred to as closing out, regardless of whether they are considered short or long. This means that both parties are without a buyer or seller position. In this case, closing out is independent of any increase or decrease in prices. Long and short constantly alternate for each trader, for example, when the trader sells a purchased position.

What is leverage?

In CFD trading, basically all trades are financed by a leverage. This means that the capital employed, does not have to cover the cost of the entire position. So it is traded with borrowed money from the trader, which practically co-finances the corresponding purchase. The leverage is given in a ratio to the capital employed. Most brokers offer a value between 1:200 up to 1:500. However, there are also offers which clearly stand out here. Thus, the leverage can also reach the value of 1:800 or 1:899. For clarification, an example should be given. If the trader has a capital of 100 euros and can use a leverage of 1:400, this means that he can make a maximum investment of 40,000 euros. The rest of the capital, i.e. the missing 39,900 euros, is financed by the broker. The personal leverage now represents a ratio that the trader has received based on his available equity. This can deviate from the general information of the broker and also assume odd values. The higher the available equity, the higher the leverage can be set individually by the broker. This instrument is used to strengthen the purchasing power of traders in the market and thus enable larger investments.

What is a fixed spread?

The spread is usually the difference between the ask and bid prices of any financial instrument. It can take different forms. The value of the spread is therefore usually flexible and can change at any time.

In the case of a fixed spread, the difference is fixed in advance. However, this determination refers only to normal market conditions. In the case of CFDs, volatility can rise sharply or fall enormously at any time. Thus, it may happen that the spread must be widened. However, even in this constellation, the value of the spread, i.e. the pips, remains constant. Once the value is fixed at 2 pips, it will not change even if the market ratio rises. Most brokers therefore specify constant spreads on their pages, which the trader can use as a guide.

What is a variable spread?

It may be that a spread needs to be adjusted too much if the market, for example, a derivative has an extreme rise. In this case, a fixed spread can very quickly become a variable spread. In this case, the conditions of the entire derivative change, so that new basic conditions must be assumed. As a rule, however, a fixed spread always remains the same.

A variable spread always depends on the respective market conditions. The volatility of the respective derivative alone determines how high the spread will be. The pips can vary greatly and range from 0.2 to 1, which can also change quickly.

The advantage of this system is that very high returns can be achieved very quickly. However, the loss of capital can also be enormous. In addition, a variable spread also depends on the liquidity of the trader. The more equity the trader can raise, the more liquid the market will be and the better the spread will be.

In this way, large investors can also influence the market very quickly in CFDs and drive up a variable spread. In this context, currencies are the most subject to fluctuations. Thus, this is also where the largest returns can be made. A variable spread can also become a fixed spread if the market or the respective derivative goes through a particularly calm phase. Then the value of the pips hardly changes, so that it is possible to work with the criteria of a stable market. However, the spread can become a variable spread again at any time, in which case you can expect high losses.

Are CFD brokers regulated?

Yes and no! Since most CFD brokers also trade in other options, the providers are generally subject to a certain degree of government control.

Special form CFD derivatives

However, this does not apply to CFD derivatives. These are contracts that are concluded directly between two trading partners. These can be banks, private individuals, companies or even the broker itself. Thus, all CFD derivatives do not fall under the control of the relevant exchange supervisory authority, but are subject to the currently applicable contract law in the respective country.

Exception brokers from the USA

Brokers from the USA are an exception to this rule. These are treated by the regulatory authority SEC under the same criteria as any other financial instrument. Therefore a certain security is guaranteed with brokers from the USA when trading.

Regulation instruments

Brokers from other countries naturally open the door to fraud. However, over time, their own regulatory instruments have developed, which should ensure a smooth flow of business. However, these only take effect after the fact. For example, a customer is excluded once he has become conspicuous through corresponding activities. However, the corresponding databases are only maintained by the respective broker. An exchange of information does not take place, so that on the market of CFDs must always be traded with caution.

Does the CFD broker provide loss protection?

  • CFD transactions are generally not offered Verlsutsicherung. CFDs are always highly speculative transactions, where the invested capital can be completely lost very quickly. In addition, trading takes place over the counter, basically between two private parties.
  • Thus, the broker is not obliged to insure the trader’s invested capital. Also, the state deposit insurance does not apply in this case, because CFDs are also traded with foreign currencies. These are generally excluded from the deposit insurance.
  • The capital on the part of the broker only in exceptional cases refunded. For this, the broker must be proven a culpable failure. For this, however, a server failure during an ongoing transaction is not sufficient, because as a rule, the various brokers have secured themselves through appropriate clauses in the terms and conditions, against such lawsuits.
  • Only the circumstance that wrong values are delivered by a broker can lead to a refund claim. However, it must be noted that in principle only case-by-case decisions can be made.
  • A general claim to a replacement does not exist, because the trader waives virtually with the use of his capital voluntarily.

What are the advantages of CFD trading?

CFD trading is much simpler than trading on the regular stock exchange. Contracts can be freely negotiated, so that the conditions are dictated only by the two parties to the contract. In addition, the returns are usually much higher than in other types of trading. Another advantage is that the browser-based system is very clearly designed, so that even beginners can find their way around very quickly.

CFD brokers usually provide a lot of analysis tools. Thus, the trader has the market constantly in view, which allows a quick intervention. Also, the deposit of the capital is easily done via online payment services such as Paypal or Moneybookers (Skrill). Thus, the money transfer usually runs without any problems. Of course, the leverage also offers enormous advantages. Due to the fact that each trade is financed via leverage, the trader only needs to raise a small amount of equity.

With little money, large transactions can thus be carried out, which can lead to corresponding returns. This, of course, also benefits the broker. In addition, many brokers offer an excellent service. This can be guaranteed by the fact that the broker acts both as an issuer and as a buyer.

What are the risks of trading CFDs?

  • Of course, trading CFDs also involves various risks. Firstly, the market is not regulated, so there is no control over a corresponding authority.
  • Thus, of course, fraud can quickly occur in this market, since the business partner is not always obvious.
  • On the other hand, the prices of the various derivatives fluctuate very strongly, so that a value can very quickly fall into the negative range. With high stakes, high losses can also be incurred in this way.
  • Probably the biggest risk is that there is a margin call.
  • All trades are financed through leverage. It is therefore traded with borrowed money. Should a position now experience a heavy loss, the trader not only loses his own capital, but also the money borrowed from the broker.
  • This money must be refunded to the broker to a certain percentage. This can quickly lead to high additional claims, which can ruin a trader.
  • In addition, all instruments on the CFD market should be handled with caution. Even the chart analysis tools do not provide clear results.
  • In the most fatal case, forced smoothing can also occur. This means that the trader is indebted to the respective broker from that point on.

Are CFDs gambler products?

“High profits – low stake”, “betting on rising and falling prices”, “profiting from high volatility”. These or similar are many advertising promises of CFD brokers on the market. In doing so, these providers appeal to the risk appetite of the customers.
Experience is the be-all and end-all

However, it is true that due to the leverage effect, CFDs are naturally very risky products. The trader can lose his invested capital very quickly without a reasonable risk management, if an unfavorable market movement occurs or his forecast just does not occur. It is often forgotten that just lack of experience and unnecessary risk can lead to losses in all financial markets. The trader also has the possibility to use certain charting techniques to predict future price movements. With stop orders he can minimize losses.

Risk management is important

Many customers see CFDs as entry-level products because of low costs and easy handling. They pay then however expensive apprenticeship money, if they do without risk management and begin immediately to enter with large money.

Information about risks must be provided

The financial supervisory authorities of the countries oblige CFD brokers to inform traders sufficiently about risks.

What are CFDs suitable for?

Most traders who trade CFDs use their leverage for speculative purposes. The traders hope to make high profits. However, contracts for difference are also suitable for other purposes. For example, they can be used to temporarily hedge a stock portfolio against price losses. For example, a stock portfolio that is predominantly composed of DAX stocks can be hedged with a short position. This is called hedging. Another advantage of CFDs is their simple structure. A CFD replicates the price performance of the underlying security one-to-one. There are no expiration dates and therefore no time value loss, as is the case with options, for example. In contrast to structured products, such as binary options, a steady participation takes place with CFDs.

What are the learning opportunities and what are the requirements?

For a trader who is new to trading CFDs, the first question is whether the broker has a free demo account and whether it also offers training opportunities. These facts can be of great importance for a later trading success of the customer.

As training is not only a catalog with the most common questions and answers meant. Rather, training refers to the range of e-books, video tutorials, webinars and face-to-face seminars.

Demo account

Absolutely necessary is a free demo account, which should be unlimited in time. Only here can the user put his theoretical knowledge from training or further training into practice.

Analytical thinking

Only those who are able to analyze price charts can recognize the right trading signals. The correct recognition of trading signals is, in turn, crucial for basing the right trading strategy on them. Patience and the right education to learn how to trade CFDs are the basis to avoid losses as much as possible.

Keep it simple

The trader who is new to CFD trading is therefore well advised to limit himself to very few underlying assets at the beginning, whereby stocks and indices are best suited for this. In contrast, commodities, but also, for example, the gold price are less suitable, because price developments are often difficult to recognize for beginners.

Automated systems

Trading CFDs is a very fast business, which is usually settled on the same day. Many traders, however, do not have the time to sit in front of the computer all day to analyze charts or follow trends. Those who do not have time all day can resort to the automated trading systems offered by brokers. Mobile trading on the go can be done through appropriate apps or websites for mobile devices.

How does the account opening process work?

Opening an account with a broker should be as uncomplicated as possible. Most brokers have the option of online registration for opening a trading account. The trader is then contacted by an employee of the broker. The employee informs the trader about what documents the broker needs to open the trading account. In this process, the trading account should have a certificate-based SSL encryption protocol. Trading accounts can usually be opened in euros, British pounds, Swiss francs or US dollars.

The broker will first ask the trader about his financial situation after the account registration is completed. In this way, he collects information for his records. However, he will keep this information safe. In this way, the broker wants to make sure that the trader can fulfill his obligation to make payments and that they are also in accordance with his own capabilities.

The trader can also open a joint account. However, in this case, both account holders must separately complete a full account registration and send a separate email in each case indicating the desire to open a joint account.

What rules should the trader follow when trading CFDs?

CFDs are very speculative investments. The customer can profit above average from rising or falling prices of stocks, commodities, bonds, exchange rates and indices.

The leverage

Decisive for the customer is not the price of the investment, but the margin. If this is 5 percent, the leverage is 20. If the price of the underlying asset rises or falls by one percent, the value of the CFD rises or falls by 20 percent. This leverage works in both directions.

Correctly assessing underlyings

Anyone who trades CFDs must therefore estimate how the underlying asset will develop. This should be easier with standard values, such as the shares in the DAX, than with unknown values or secondary values. Indices such as the DAX, Euro-Stoxx, FTSE-100, CAC40 or the Nikkei are also suitable as an entry point. For commodities, gold or oil are suitable.

Margin determines the stake

With the amount of the margin, the trader determines how much money he wants to deposit when he buys a CFD. The smaller the margin, the greater the leverage and consequently the higher the risk. Anyone who starts trading CFDs should start with the lowest possible leverage. Also, the size of the individual position should not be too large in relation to the available capital: This means, for example, who has 10,000.00 euros on a CFD account, should not immediately trade CFDs for 5,000.00 or 7,000.00 euros. Some CFD brokers have special accounts with lower risk for beginners.

Margin Call

Another special feature of CFDs is the margin call. If the customer loses more money than he has in the account, he must deposit new money, so “refill”. Otherwise the position is closed. The leverage effect can have the consequence in particularly extreme market conditions that the trader is subject to a margin call in the worst case, because he can lose more than the capital available in the CFD account.

Hit rate in CFD trading

CFD trading is associated with great opportunities but also great risks due to its leverage effect. For the trader it is therefore particularly important to deal with the topic of risk management particularly intensively, because only small price fluctuations in the underlying asset can have quite significant effects on the total capital of the trader.

Capital preservation

In CFD trading, capital preservation is in the foreground, because without capital no trading is possible at all. Movements of the individual markets are brought about by purchases and sales. Furthermore, opinions or feelings also play a significant role. If the trader receives a profit, this is usually connected with good feelings. However, the realization of losses is painful for many traders.

What is the hit rate?

A hit ratio is the ratio of winning trades to losing trades. This ratio is psychologically important and depends on the strategy used by the trader. A high hit ratio does not necessarily mean that a trader is trading profitably. For example, if a trader achieves 8 winning trades and 2 losing trades, he has a hit rate of 80 percent. However, this is not a statement about the amount of profits achieved or losses suffered. Thus, in contrast to the hit rate, a profit-loss calculation can look different.

Average rate

The hit rate of many traders is just between 30% and 40%. So a high hit rate alone does not indicate whether the trader is trading profitably. Therefore, it is important for the correct classification of the trading results to consider the profit factor. For this purpose, the average profit and the average loss are included. A profit factor of more than one indicates that the trade is profitable. Thus, the trader has the task to increase the average profit of each trade in relation to the trades with loss and at the same time to limit the loss. Then he can trade with profit even with a hit rate below 50 percent.

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Risk Warning

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Trading with financial products (CFDs, Forex, Stocks, Cryptocurrencies, etc.) in general and with leveraged products especially is highly speculative and not suitable for all investors! The loss of your entire investment is possible. Never invest money you can`t risk losing! Decentralized and not regulated cryptocurrency markets are also a high risk and may lead to a significant loss.

Disclaimer

Everything on this site should not be considered as financial or investment advice. This is only a website offering information, EarlyBull is not a registered broker, advisor or analyst. Always do your own research, only you are responsible for your actions. What works for others doesn`t have to work for you.

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