Compare Online CFD Brokers

CFDs Trading and Brokers

When trading the global markets, specialization means better information and better performance.

What is a CFD?

A CFD (Contract for Difference) is a derivative product that allows investors to trade the direction of any global market (Forex, Equities, Cryptocurrencies, Commodities), without the need to owe any physical units. CFDs are easy to trade and offer the opportunity to speculate on the future market movements of a wide variety of underlying assets. 

• By trading CFDs, you can speculate on any financial instrument, without the need to own it
• Trade 24/5 rising or falling markets, choose among a wide variety of trading orders
• Trade via a simple WebTrader, or the more advanced MT4/MT5 platforms
• Availability of thousands of different financial assets (Forex, Indices, Stocks, Crypto, Commodities, etc.)
• CFD brokers usually don't charge commissions, they charge a trading spread (1 pip minimum)

Compare Popular CFD Brokers

These are some regulated CFD brokers offering segregated client bank accounts. All the following companies have been operating in the market for at least 5 years.

How do CFDs work?

A CFD contract is designed to track the price movements of any financial instrument. That means that a CFD contract can mirror the price fluctuations of almost every traded financial asset. When a new position is opened, the profit/loss is determined based on the price movement of the underlying asset.

A CFD trade can close in three ways:

(i) If the price of the underlying financial instrument touches the take-profit price (pre-determined profit)

(ii) If the price of the underlying financial instrument touches the stop-loss price (pre-determined loss)

(iii) The trade can also manually be closed by the trader (anytime he wants to)

Example of a CFD Trade on EURUSD (Calculating the Profit/Loss)

For example, it is assumed that a Forex trader buys 1 lot of EURUSD at 1.1002, and later sells it at 1.1022

• Initially, EURUSD is bought and sold at 1.1000 / 1.1002 (bid/ask)
• To buy 1 standard lot (100,000 USD of value), the trader needs to have about $500 in his account (that means leverage 200:1)
• As the position is opened the trader notices that his account is charged with about $20. This is due to the difference between ask and bid (in our example 1.1000 / 1.1002, which means 2 pips spread)
• As EURUSD moves 20 pips higher, the trader decides to close his position
• The new Ask/Bid is 1.1022 / 1.1024
• The trader closes his position at 1.1022
• The profit is calculated as 1.1022 – 1.1002 = 20 pips
• 20 pips of profit equal about $200

CFDs and Cost of Trading

These are all the fees and commissions charged by CFD brokers that you should know about before starting a new account.

(1) Trading Spreads

Where can you find information about the trading spreads? at each CFD broker's website or via 3rd parties specialized in comparing spreads

The spread is the difference between ask and bid. The great majority of CFD brokers charge trading spreads without any trading commissions. The minimum spread when trading CFDs is about 1.0 pip on EURUSD. A clever way to reduce your trading costs is to join a trading rebate plan.

Be aware of Re-Quotes (if you plan to trade intraday)

A re-quote means that when you open a trade position the price you pay is worse than the one you have entered. That means extra cost. Re-quotes usually occur in fast-moving markets, such as markets after important news announcements. You can protect your account from re-quotes by placing a pending order (limit order) and not an instant execution order. When you place a limit order, you state that you are willing to open a trade position at a specific price or better.

(2) Trading Commissions Charged

Where can you find information about the commissions? at each CFD broker's website

CFD brokers usually don't charge trading commissions. When they do, these commissions are calculated on a round-lot basis.

(3) SWAPs / Overnight Financing

Where can you find information about the SWAP rates? at CFD broker's website

• The SWAP rates exist to balance the overnight cost of money.
• When you open a long or a short CFD position, it becomes the subject of interest rate charges as any other cash transaction. This is because FIAT money offers different interest rates. The difference in positive/negative rate charges depends on the asset you are trading, and on the direction you are trading.
• The SWAP cost applies every calendar day at the end of each trading day at midnight (according to your broker's server time). The SWAP rate amount is tripled on Wednesdays to cover Saturday and Sunday. That means the SWAP rates are applied 365 days per year.
• The SWAP rates can be either positive or negative. For example, if you trade a Forex pair such as AUDUSD or NZDUSD the difference is positive and it is credited to your trading account. If you trade USDZAR the difference is negative and it is removed from your trading account.

Explanation of SWAP Rates in Forex

As currencies are traded in pairs, each time a transaction occurs, one currency is purchased and one currency is sold. There are quite a few currencies offering high-interest rates (NZD, AUD, etc.) and other currencies offering low-interest rates (USD, EUR, etc.). When you trade any Forex pair, the difference between the two interest rates may be positive or negative:

(i) If the difference is positive, then a swap amount is credited overnight

(ii) if the difference is negative, then a swap amount is debited overnight

Note, that if you trade commodities or equities, the SWAP rates will be always negative.

TIP: Avoid paying SWAP fees by trading CFDs on Futures

A very smart way to avoid paying SWAP rates is to buy CFDs on Futures. For example, if you buy the USD30 Index via a CFD on Futures you will pay a greater spread but you will not pay any SWAP charge until the contract ends. Usually, CFDs on Futures last 2-3 months and mirror the price movement of the underlying asset exactly the way a simple cash CFD contract mirrors it. If you are a swing or a long-term trader, CFD on Futures is your best weapon to make money.

(4) Funding (Deposit/Withdrawal) Fees

Where can you find information about these fees? Use each CFD broker's live chat service

Funding fees may be charged on deposits and/or withdrawals.

(5) Maintenance/ Inactive Fees

Where can you find information about these fees? Use each CFD broker's live chat service

A few CFD brokers may charge fees for inactive accounts. These fees are called Maintenance/Inactive fees.

Some Important Tips When Trading CFDs

These are some key tips when you are trading CFDs:

(1) Limit your deposits

• Don't deposit too much in your trading account. Deposit exactly as much as you need to cover your initial positions.

(2) Limit your portfolio risk

• Don't use capital leverage more than 5:1. Capital leverage increases your risk more than the average trader can anticipate.
• Also, don't risk more than 2% on any individual position. If you hold USD10,000 then don't risk more than $200 on any individual trade.

(3) Place small pilot orders

• Pilot orders are very useful if you are a beginner.
• If you want to risk $200 on a single trade, you can open a small pilot position (i.e. 0.01 lot) and check the amount of loss that covers your stop-loss. If you see that the 0.01 lot trade results in a $20 risk then you know that you need to open an additional position of 0.09 to risk no more than $200.
• An alternative is to use a demo account and place your pilot orders there before you execute them on your real account.

(4) Trade what you know

• Traders enjoy greater success when they trade assets they already know. Therefore, avoid trading unknown financial instruments, and when you do, use pilot orders.
• Most professional traders are specialized in particular instruments. For example, they may trade only Gold, Crude Oil, US30, or EURUSD. Specialization means better information and better information means better performance.

■ CFDs Trading and Brokers

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