Our Top Picks for Best CFD Brokers
Choosing the right CFD broker can be challenging. We have outlined the most comprehensive brokers for your trading experience. Here are five options for the best CFD brokers:
Why Did We Pick It?
Plus500 offers a comprehensive array of CFD products, including forex, indices, cryptocurrencies, commodities, ETFs, and options, allowing traders to diversify their portfolio within the same platform.
Regulation and Safety: Plus500 is heavily regulated and is listed on the London Stock Exchange, this enhances its credibility and shows commitment towards providing a safe and secure trading environment.
Trading Platform: Plus500 offers an intuitive, user-friendly platform that is suitable for both beginners and experienced traders. Its platform provides an array of charting tools and technical indicators which aids in conducting detailed market analysis.
Customer Support: Plus500 offers strong customer support, with 24/7 assistance available via email and live chat, demonstrating their commitment to resolving customer queries and issues.
Risk Management Tools: Plus500 provides a range of risk management tools, including stop limit/stop loss and trailing stops.
Demo Account: Plus500 offers a free, unlimited demo account where you can practice your trading strategies with virtual money, honing skills and testing the platform.
Read our full review of Plus500.
Why Did We Pick It?
eToro was chosen as the best CFD broker for copy trading due to its pioneering and robust approach in this field. Here are a few reasons:
Social Trading Feature: eToro is known for its pioneering social trading platform where users can follow and copy the trades of expert investors. This is particularly useful for beginners or those who want to diversify their trading strategies.
Diverse Range of Instruments: eToro offers a wide array of CFD products including stocks, commodities, indices, currencies, ETFs, and even cryptocurrencies.
Regulation and Security: eToro is regulated by top-tier authorities like the Financial Conduct Authority (FCA), the Cyprus Securities and Exchange Commission (CySEC), and the Australian Securities and Investments Commission (ASIC).
User-friendly Platform: eToro’s platform is intuitive and user-friendly, catering to both novice and experienced traders.
Educational Resources: eToro provides a rich resource of educational content including webinars, a trading school, and a demo account with virtual money for practice.
Customer Service: eToro has a responsive customer service available through multiple channels.
Transparency: eToro operates on a fully disclosed fee structure, including withdrawal fees and inactivity fees, so traders are aware of all the charges upfront.
Read our full review of eToro.
Why Did We Pick It?
FXPro stands out as the premier CFD broker due to its commitment to transparency, reliability, and innovation. FxPro accepts US clients as long as they reside outside the US. Offering a range of advanced trading platforms like MetaTrader 4, MetaTrader 5, and cTrader, FXPro caters to diverse trading styles. Its regulatory compliance with reputable authorities such as FCA and CySEC ensures a secure trading environment.
Competitive spreads and a trader-friendly fee structure enhance the cost-efficiency of trading, complemented by various account types. FXPro’s dedication to education through webinars, seminars, and articles empowers traders with knowledge.
With round-the-clock, multilingual customer support, FXPro prioritises client assistance. Its blend of cutting-edge technology, strong regulation, competitive pricing, educational resources, and attentive customer service makes it the go-to choice for traders seeking a trustworthy and feature-rich online trading platform.
Read our full review of FXPro.
What Are CFDs?
Before we get started on CFD brokers and how they can help you, it is important to know the definition of CFDs. As aforementioned, the term “CFD” means “Contract for Difference.”
CFDs are derivative products, meaning that they involve speculation. You speculate on different financial products, such as forex, commodities, indices, and shares, all without actually taking ownership of those four underlying assets.
In a CFD trade, the trader expects the asset price to rise or fall. The trader trades the asset with the broker, all without a physical delivery of the underlying asset. When the trade is closed, the trader experiences a profit if the price of the asset has risen or a loss if the price has fallen. Traders speculate on price movements. CFD trading allows for speculation on the movements in either direction.
Short CFD Trading
Short CFD trading, or “going short,” lets you open a CFD position that profits when the asset’s underlying market decreases in price. In this case, you are speculating on a loss in profit. “Going short” is also called “selling.”
Long CFD Trading
“Going long,” or long CFD trading, lets you open a traditional CFD trade. The trade profits when the market rises in price. When you’re “going long,” you’re “buying.”
Comparison To Other Markets
When compared to other financial products, CFDs somewhat resemble the futures and options markets. However, there are some major differences. For example, CFDs have no expiration date, and the contract is usually 1:1 with the underlying asset. Minimum contract sizes are smaller than futures and options, so you can, theoretically, trade just a single Contract.
Assets You Can Trade With CFD Brokers
A broker acts as a go-between. You place your trade with the broker, and the broker places the trade on the exchange. Brokers are members of the exchange, and you need a broker to trade CFDs. How hands-on you want your broker to be depends on whether you choose a DMA or market maker broker.
- DMA Brokers: DMA brokers are “Direct Market Access” brokers, and they are one of two main types of CFD brokers. A DMA broker enables the trader to trade on the CFD markets but doesn’t play a role in executing the trade. The trader places the trade directly in the markets. The buyer or seller on the other side must link with them to complete the trade. The DMA broker is in it for the commissions, and they are, essentially, hands-off middlemen.
- Market Makers: A market maker is the second type of broker, and they are more hands-on than a DMA broker. Market makers create the market on which the CFDs are traded, and they are far more than just a portal between trader and market. The trader abides by the market maker’s pricing when making a trade. Pricing with market makers tends to be less advantageous when compared to the pricing on real-life markets. But, there is a tradeoff, as market makers absorb more risk and offer more real-time liquidity and input to traders. Market makers are also often faster in execution; there is less delay because the broker and market are one and the same. The role you want your broker to play determines the type of broker you will pick.
Traders use four underlying assets when trading with CFD brokers: indices, stocks, currency pairs, and commodities.
Indices measure the performance of a group of shares on a stock exchange. Trading indices might expose you to an entire country’s economy. Or, you can scale back your trading to just one sector of an economy.
Stocks are likely the commodity about which you’ve heard the most. They are an investment in a company and the company’s products. Stockholders who buy shares of a company’s stock have part ownership of the company. Stocks have also been called “equities.”
Currency pairs are two different currencies, and the value of the first currency is quoted against the second. The base currency is the first pair listed, while the quote currency is the second pair. Major currency pairs include EUR/USD, USD/JPY, USD/CAD, AUD/CAD, NZD/USD, USD/CHF, and GBP/JPY.
Commodities are the fourth underlying CFD asset. They are an economic good that has substantial, if not full, fungibility and interchangeability. The market treats the commodities as equal, no matter who produced them. Examples of commodities include natural gas, beef, gold, oil, and grains. These traditional commodities have been traded on the stock exchange for centuries, and there are many more commodities from which to choose in today’s world.
Can CFD Trading be Profitable?
Yes, CFD (Contracts for Difference) trading can indeed be profitable, but it also carries a high level of risk. Profits are made via speculation on the price movement of the underlying asset without actually owning it.
Here are a few reasons why CFD trading can be profitable:
Leverage: CFDs are traded on margin, allowing traders to leverage their positions. Therefore, traders can control a large position while only committing a small amount of their capital, potentially leading to significant profits if the trades go in their favour.
Access to Global Markets: CFD trading provides access to a wide variety of markets worldwide, such as indices, commodities, stocks, and Forex pairs. This wide access offers opportunities to make profits across different market conditions.
Short Selling: In CFD trading, you can take a position on the price going down (short-selling), allowing potential profit even in falling markets.
Hedging: Traders can use CFDs to hedge their portfolios against potential losses elsewhere.
However, the potential for profits in CFD trading needs to be balanced with the risks:
Leverage Risk: While leverage can amplify profits, it can also amplify losses. If the trade doesn’t go as expected, you could lose more than your initial deposit.
Market Volatility: Market prices can change rapidly, leading to potential unexpected losses.
Overnight Charges: Most brokers charge fees for keeping a position open overnight, which may erode potential profits.
Complex Product: Understanding CFDs and the dynamics affecting their prices can be complex, necessitating considerable knowledge and experience.
Overall, while CFD trading can be profitable, it is also high risk and not suitable for everyone. It is essential to understand the markets, have a well-thought-out trading strategy, risk management in place, and make use of educational resources and demos before starting live trading. As always, it’s crucial to only trade with money you can afford to lose.
Are CFDs Good for Beginners?
CFDs, or Contracts for Difference, are complex financial instruments that allow traders to speculate on the rising or falling prices of fast-moving financial markets (or instruments) such as shares, indices, commodities, currencies, and treasuries. While CFDs can offer high potential returns, they also carry a significant level of risk, especially for inexperienced traders.
For beginners, the following aspects of CFD trading may be risky:
Leverage: CFDs are leveraged products, meaning you only need to put up a small amount of the total trade value (margin) to open a position. While this offers the potential for large profits relative to the initial investment, it equally means that losses can exceed the initial deposit if market movements aren’t in your favour.
Price Volatility: CFD prices are directly influenced by the underlying asset. If these assets – such as commodities or forex pairs – become very volatile, the knock-on effect can result in rapid fluctuations in the CFD price, which can lead to sudden and significant losses.
Lack of Ownership: When you trade CFDs, you don’t actually own the asset or instrument you select. You’re only speculating on the price movement, which can be hard to grasp for beginners.
Complexity: CFDs come with their own unique set of rules, such as overnight financing costs if trades are held open beyond a certain period, and understanding these rules can be challenging for new traders.
That being said, if a beginner trader is determined to start with CFDs, doing the following can help mitigate some risks:
Educate Yourself: Understand what CFDs are, how they work, and study the markets before diving in.
Start With a Demo Account: Most brokers offer a demo account where you can practise trading CFDs using virtual money. This can help you understand the mechanics without risking real money.
Risk Management: Use stop losses and take profit levels to manage the risk on each trade.
Start Small: Begin trading with a small capital investment and only trade money that you can afford to lose.
Finally, it is highly recommended to seek advice from a financial advisor before starting to trade CFDs.
How Do CFD Brokers Make Money?
DMA brokers and market makers both make their money through commissions and fees to use their platform. That is why it is essential to research a broker’s fees before signing up. While some fees and commissions are inevitable, you don’t want to put a hole in your wallet.
How Did Investing.com Choose the Best CFD Brokers?
At Investing.com, our mission is to provide traders with accurate and up-to-date information about brokers. To achieve this, we’ve developed a comprehensive rating system that quantifies each broker’s performance. Our ranking methodology is designed to offer traders valuable insights into broker features, strengths, and potential areas for improvement. We aim to equip traders with the knowledge they need to make informed decisions on their trading journey.
We selected the best CFD brokers through a rigorous evaluation process that considered multiple critical factors. Our approach aimed to provide you with a comprehensive understanding of each broker’s strengths, features, and potential areas for improvement. Here’s an overview of how we chose the best CFD brokers:
- In-Depth Analysis: Our team of experienced experts delved into each broker’s offerings to assess their CFD platform. We evaluated the broker’s CFD platform for user-friendliness, advanced charting tools, ease of use, and compatibility with various devices.
- Easy Access: We assessed the ease and speed of accessing CFD trading.
- Trust and Safety: Regulatory compliance was a top priority. We ensured that brokers offering CFD trading were licensed and regulated by credible authorities. We evaluated the broker’s measures for fraud prevention and client fund security to ensure a secure trading environment.
- Additional Features: We also ascertained the presence of other supplementary features to support traders, encompassing market variety, account options, fee structures, customer service, trading tools, and more.
In conclusion, CFD trading presents a valuable opportunity for traders of all levels, offering beginners a solid foundation to start their trading journey and allowing experienced traders to diversify their strategy by leveraging the experience of others.
Keep in mind that while CFD trading can simplify the trading process and potentially yield significant profits, it’s also accompanied by potential risks. Always remember to do thorough research, choose a well-reputed copy trading platform, and select to copy traders who align well with your risk tolerance and trading goals.
Is CFD Trading Legit?
CFD trading is legitimate, but CFDs are high-risk investments. Even the most skilled traders experience periodic losses. Though the trading is legitimate, not all CFD brokers can say the same. For example, some brokers are just automatic trading robots that place inaccurate trades automatically. They make money from commissions, but the investor doesn’t benefit at all.
Do I Pay Taxes for CFD Trading?
Yes, in most countries profits from CFD (Contracts for Difference) trading are considered taxable under some form of capital gains or income tax. However, this depends on the specific tax legislation in the country where the trader resides. Factors such as how much you earn in total, how long you hold a position, the specific tax regulations in your location, and whether trading is your primary source of income can all influence how your trading profits are taxed.
In the UK, for example, CFD trading profits are subject to Capital Gains Tax but you can offset losses against profits for tax purposes. Additionally, in the UK and some other countries, CFD losses can be carried forward to offset against future profits, which could potentially lower your future tax liability.
On the other hand, in Australia, profits can be taxed as income or capital gains, depending on whether you’re classified as a trader or an investor.
In the US, CFDs are banned due to the regulations and as such, no taxes are paid.
It’s very important to note tax laws are highly dependent on individual circumstances and local laws, and they can change. Therefore, to get thorough and accurate information about your specific tax obligations as a CFD trader, you should consult with a tax professional or a financial advisor. Always ensure that you maintain clear records of your trading activities and profits to make tax reporting easier.
Is CFD Trading Risky?
Yes, CFD (Contracts for Difference) trading is generally considered risky. CFD trading is not suitable for everyone, particularly novice investors or those who cannot absorb potential losses. Before engaging in CFD trading, it’s crucial to thoroughly understand these risks and have effective risk management strategies in place. As always, it’s advisable to seek independent financial advice.