CFD trading is one of the most popular ways of earning some extra money via predictions on how particular shares will perform over a given period. If you’re interested in starting to trade this way but don’t know which broker to turn to, here is a list of the ten best CFD broker firms out there to help you on your way to becoming an excellent trader.
What Is CFD Trading?
CFD stands for ‘contract for difference’ and it’s an agreement among two different parties who wish to exchange the difference between the price of a contract at the opening and the closing. They are derivative products which will allow you to trade on the price movements of the live market but without you needing to own the primary instrument upon which your contract was based.
A trader can use CFDs if they want to speculate how the market prices will move in the future, independent of the situation of the markets, whether they rise or fall. There are two ways in which you can go about this, as follows.
- You can sell or go short, as the action is otherwise called in the business. This course of action will allow you to make a profit based on the prices that are falling.
- You can also hedge your portfolio if you want to counterbalance a potential loss as far as the value of your physical investments goes.
Here’s an example of a CFD trade which will help you to understand better how the process works.
Let’s say there is a share which is trading for $25.26. You, the trader, buy one hundred of those shares, at the aforementioned price. A simple calculation shows that the whole transaction will cost you $252.6. If your broker would allow you a 50 percent margin, which is also called leverage, then you, the trader, would have to put down half of the total amount of the trade. However, if you had a CFD broker and he would allow you to have a margin, it would only be five percent. In this case, the whole trade would have only required $126.30.
Is There More Than One Type of CFD Broker?
The CFD providers can be broken down into two categories.
- The Market makers
- The Providers of direct market access
There are also some providers who can grant you access to both models of brokerage regarding CFD training. However, there are also some of them that perform one task exclusively. What’s important for you to know is that there is no right or wrong when it comes to choosing between the two. They both have their pros and cons as well as their strengths and weaknesses. In this sense, it will be up to you, the trader, to decide and, later on, choose exactly which model is suited for your business.
The Top 10 List to the Best CFD Broker
Below is a list of the recommended CFD broker companies for 2016, which you might want to take into consideration if you want to get into CFD trading.
#1. ETX Capital
Their spread is 0.9, leverage 400:1, the minimum deposit is over $100, and they don’t provide any demo account. You also get a welcome bonus of 60% up to over $7,000.
#2. Iron FX Solid Trading
Their spread is two or three pips, the leverage is 500:1, the minimum deposit is $500, and they provide an open demo account. The welcome bonus is 60 percent plus the trading contests.
#3. Plus 500
#4. Capital Spreads
There is no mentioned spread, leverage or minimum deposit, and they don’t provide demo accounts. You do get ten percent bonus for a required deposit of $3,000.
The spread is 0.1 pips, the leverage is 1000:1, the minimum deposit is $1, and they don’t offer demo accounts. The bonus is $2 cashback per lot traded.
#7. UFX Markets
The spread is two pips, the leverage is 200:1, the minimum deposit is $100, but they don’t offer demo accounts. The welcome bonus is 30 percent.
The spread is one pip, the leverage is 1:200, the minimum deposit is $50, and they don’t offer demo accounts. There is also no welcome bonus.
The minimum deposit for this CFD broker is $10, and they don’t provide demo accounts. As far as the welcome bonus goes, they have a free spread betting guide type of situation in place.
#10. IG Index
The minimum deposit for this CFD broker is $10, and they don’t offer demo accounts. There is no applicable welcome bonus.
What to Take into Consideration When Choosing a CFD Broker
- The CFD broker must be licensed so that it can provide this service in a particular country. Apart from that, there are also some specific regulations the CFD broker must abide as far as handling clients’ money goes.
- Seeing as a CFD broker is nothing else than a margin account, you will need to know what are the margin levels and rules.
- Every CFD broker out there charges some commissions when trading. Once you’ve selected a particular CFD broker, make sure you learn what their commissions are.
- There are a few CFD brokers that also build extra charges into the spread. Is your allotted CFD broker one of those? How much money will you be paying?
- Do some research on the assets or markets which are being offered as far as trading goes. There are some countries which limit the assets that can be traded as CFDs. Before you get started, you will need to know whether your preferred asset or market can be traded on the platform of your choosing.
When choosing a CFD broker, remember to take a look at the top ten list we’ve selected for you. Always do your research and keep in mind it’s not all about choosing the best CFD broker. It’s about choosing the CFD broker that suits you best.