eToroVisit eToro76% of retail CFD accounts lose money
Trading 212Visit Trading 21283% of retail investor accounts lose money
PepperstoneVisit Pepperstone74-89% of retail investor accounts lose money when trading CFDs
Plus500Visit Plus50077% of retail investor accounts lose money
IG MarketsVisit IG Markets68% of retail CFD accounts lose money
AvaTradeVisit AvaTrade76% of retail investor accounts lose money
IC MarketsVisit IC Markets74-89% of retail CFD accounts lose money
Forex.comVisit Forex.com81% of retail investor accounts lose money
OandaVisit OandaCFDs are not available to residents in the United States
XMVisit XM77,37% of retail investor accounts lose money
CFD brokers refer to brokerage firms that offer individuals the opportunity to trade CFDs (Contracts For Difference).
CFDs are derivatives that allow traders to speculate on the price movement of underlying financial instruments, such as stocks, commodities, currencies, indices, and bonds, without actually owning the underlying asset.
CFD brokers provide leverage, which lets traders control larger positions with relatively small capital, magnifying potential gains and losses. CFD trading involves spreads, which is the difference between buying and selling prices, and may include commissions and overnight financing fees. These brokers often offer additional services such as research and technical analysis tools.
Regulated by financial authorities in many jurisdictions, CFD brokers operate with specific guidelines to ensure market integrity and consumer protection, though trading with them carries inherent risks.
We researched and tested the ten best CFD brokers in 2023, ensuring you only trade at reputable and reliable trading platforms. The two first things we looked at were regulation and the traders’ trust in the broker.
Along with these factors, we also considered:
- The minimum commissions charged on CFDs
- The amount of tradable CFD markets
- The general quality of service
- The maximum leverage available
|BROKER||SPREADS FROM||NUMBER OF CFD ASSETS|
|Trading 212||0.8 pips||1800+|
|IG Markets||0.6 pips||17000+|
|IC Markets||0 pips||1000+|
What are the best CFD trading brokers?
Below our curated list of the best CFD trading platforms offered by the major brokerage firms, with detailed insights into their standout attributes.
What Are CFDs?
A contract of differences (CFD) is an agreement (contract) between the buyer and seller, where the buyer pays the difference between the asset’s current and contract time value. CFDs offer traders and investors the chance to profit from price movements without owning an asset.
An important thing to note here is that a CFD contract doesn’t consider the underlying asset’s value but the price change between the time a contract opens and closes. Based on that, CFDs are nothing else than a form of price speculation, where one can profit from price changes and not from buying or selling an actual asset.
Regarding asset classes available for CFD trading, their exact range will depend on the broker. Usually, top CFD brokers offer traders the following CFD products:
How Does CFD Trading Work?
CFD trading doesn’t involve purchasing underlying assets but rather speculating on whether the price of the CFD asset raises or loses its value.
This is the reason why CFD trades can be executed both long and short: if you think the CFD is going to raise in value, then you can open a “buy” (long) order. Vice-versa, you can open a “sell” (short) order if you think the value is going to decrease.
CFDs are quite unique as they may charge rollover fees (which are not charged by other derivatives). This commission is an interest, and is paid if the CFD trade is carried (i.e. is kept open) to the next day trading session.
Once you close the CFD trade, the net profit (or loss) is the price difference between the opening and closing trade minus the applied trading costs, such as spreads, commission or interest.
CFD Trading vs. Stock Trading
The primary difference between trading CFDs and trading stocks is the matter of ownership.
In a classic stock trade, a buyer purchases a stock via the broker who holds these shares on the buyer’s behalf. However, it’s the buyer that becomes the actual shareholder, meaning they can even take votes or participate in proxy meetings. In some instances, the buyer might even become eligible for a dividend. The buyer can also later sell their shares, but it’s them who picks the moment for that.
On the contrary, trading stock CFDs doesn’t give the buyer ownership rights. As covered, when you purchase a stock CFD, you don’t own the underlying asset but open a trade that speculates on its price change within the contract’s period. CFD trades don’t include any ownership exchanges.
Another difference is the trading risk. Stocks are usually long-term investments that carry lower risk. CFDs, on the other hand, are much riskier. That risk grows even further when using leverage, which, in simple terms, can be explained as a debt an investor takes to increase their buying power.
CFD Trading vs. Forex Trading
The key difference between CFD and forex trading is that CFDs are trading instruments, whereas forex is an asset class, namely, currency. That difference means CFD traders can often take advantage of thousands of CFD trading instruments, including currencies. On the other hand, Forex traders can typically trade between 30-80 currency pairs, although their exact number can vary between Forex brokers.
Another difference is the cost of trading CFDs and forex. While both involve spreads, CFD traders often encounter additional fees. For instance, many CFD brokers charge holding fees when you decide to hold your CFD contracts overnight. CFD trading also often involves commission from the transaction costs.
Finally, there’s the difference between contract sizes. A standard lot for forex currency pairs is 100,000 units, with forex brokers also offering traders leverage to trade smaller forex lots – mini (10,000), micro (1,000), and nano (100). A CFD contract size, though, will depend on the market.
However, despite these differences, forex and CFDs share numerous similarities. For instance, they both have an almost identical trade execution process. They also don’t require traders to own underlying assets, allowing them to speculate on price movements. These are some of the many reasons why the best forex brokers allow their users to trade CFDs.
Benefits and Risks of Trading CFDs
Like any type of trading instrument, CFDs offer a distinct set of advantages and disadvantages for online traders. Therefore, before deciding on whether trading CFDs is the right choice, it’s worth considering them in more detail. Let’s start with CFD trading advantages and then head over to the most significant risks.
CFD Trading Advantages
Diverse range of markets: One of the most significant advantages of CFD trading is that CFD traders can access a massive range of markets, including stocks, indices, forex, commodities, cryptocurrencies, and more. That allows traders to diversify their portfolios by taking advantage of various market conditions.
High leverage: CFD trading allows traders to leverage their capital, allowing them to trade with larger positions than their account balance would allow. This enables traders to amplify their profits if the trade goes as planned. However, it also comes with an increased risk.
Lower transaction costs: Compared to traditional trading, CFD trading has lower transaction costs due to lower commissions, tighter spreads, and no exchange fees. Of course, the exact trading costs will depend on the broker, but you can expect CFD trading to include lower fees than stock trading.
Ability to short sell: CFD traders can profit from falling prices by selling the asset without actually owning it. This is known as short selling, is not possible in traditional trading, and can be very profitable when executed correctly.
Flexibility: Finally, CFD trading enables online traders to open and close positions quickly, which provides greater flexibility in managing their trades.
CFD Trading Risks
High risk: First and foremost, CFD trading is a high-risk activity involving the possibility of losing more than the initial investment. This is because of the high leverage offered, which amplifies both profits and losses.
No ownership of underlying asset: When trading CFDs, you do not actually own the underlying asset but rather speculate on its price movement. This means that CFD traders do not have any rights or benefits associated with owning the asset, such as dividends or voting rights.
Complexity: CFDs are complex financial instruments, which can be difficult for new traders to understand. That being said, it’s essential to understand the market and the instruments traded before entering into CFD trading, which is why they are mostly recommended for experienced traders.
Limited regulation: CFD trading is not regulated in all countries (in the US, for instance), meaning traders may have less protection. That is why choosing a trustworthy online CFD broker regulated by reputable authorities is vital.
Overnight financing costs: Although CFD trades typically don’t involve any trading fees, since they are traded on a margin basis, it means CFD traders may be forced to pay overnight financing costs when holding their positions overnight. These costs can significantly affect your profits, so be sure to factor them into your trading decisions.
What Is a CFD Broker?
CFD brokers are online trading platforms that grant online traders access to CFD trading instruments. Their exact number and variety usually depend on the broker, although the best CFD trading platforms offer thousands of tradable CFDs, including forex currency pairs, stocks, commodities, indices, etc.
How do CFD brokers work? In simple terms, they facilitate trading processes through the online trading platform. To use such a platform, you will first need to create a trading account and make your initial required minimum deposit. There are, however, various types of CFD brokers and trading accounts. Various brokers might also offer different trading platforms.
Types of CFD Brokers
Online CFD brokers usually divide into two categories – market makers and NDD brokers.
Market makers are brokers who purchase positions from liquidity providers, which they later sell to individual traders. Such brokers match selling assets to traders with buy or sell orders, often accepting lower minimum deposits due to their ability to cover liquidity deficits.
No Dealing Desk (NDD) brokers, on the other hand, connect online traders with liquidity providers. The broker doesn’t intervene, working as an intermediary between its users and liquidity providers. Such platforms usually require higher deposits as they don’t cover liquidity gaps, and they can either be ECN, STP, or DMA brokers, which are:
- ECN brokers use electronic communication network methods to connect traders with liquidity providers;
- STP brokers offer the straight-through-processing (STP) execution of trades;
- DMA brokers provide traders with direct market access (DMA), allowing them to execute their trades by interacting with an electronic order book directly.
What CFD accounts are there?
Most online brokers offer their users several CFD account types they can create depending on their level of expertise and available funds. Typically, you can expect a CFD broker to offer the following accounts:
- Micro accounts: These are best for CFD beginners, with minimum deposits often as low as 50-100 dollars;
- ECN accounts: Such accounts might require deposits of $500 upwards, perfect for more CFD traders who already have some experience trading CFDs;
- Standard accounts: Perfect for experienced CFD traders, standard accounts typically require a minimum deposit of $1,000 and offer higher leverage options;
- Professional accounts: These are designed for professional investors. They require high deposits (often of up to several thousand dollars), as well as previous trading portfolios.
- Islamic accounts: Since CFD trading is haram (forbidden) for Muslims, some brokers offer interest-free accounts for Muslims. Therefore, if you’re a Muslim and want to trade CFDs, finding an online broker that offers such accounts is a good idea.
Of course, the exact account types will depend on the broker. Many also offer new traders a demo account, where a user can trade CFDs for free. Of course, it’s impossible to make or lose real money when using a demo account, but it offers a nice learning tool for new traders to see how the trading platform performs.
CFD Trading Platforms
When trading through a reputable broker, you should expect it to offer you the best CFD trading platform that’s easy to use and performs well. Best CFD brokers typically provide their users with several trading platforms, with the two most popular being MetaTrader 4 (MT4) and MetaTrader 5 (MT5). Another popular option is cTrader.
If you see a broker offering any of these three, you can, in most cases, expect an exceptional trading experience. That’s because these are industry-leading platforms, especially MT4 and MT5, with most brokers optimizing their platforms to be compatible with the MetaTrader system.
How to Find the Best CFD Broker?
With so many CFD brokers available, finding the perfect trading platform for your CFD trading needs can be daunting. Essentially, any of the brokers we listed in our guide should provide you with an exceptional trading experience. These are some of the most reputable CFD brokers in the industry, and, from our experience, they’re great options for trading CFDs.
However, these are only our proposals. Also, since there are ten of them, it means you’ll still need to do some research yourself before making the final call. Therefore, the question is, what should you consider to choose the best CFD broker? There are several factors to look for, the most significant being:
- Regulation: As a rule, you should always consider only trustworthy CFD brokers. In other words, only trade at licensed and regulated platforms. Look for licenses from the most reputable governing bodies, such as the Financial Conduct Authority (FCA)and the Australian Securities and Investments Commission (ASIC). The broker should also be ESMA-compliant (European Securities and Markets Authority).
- Trading costs: Most CFD brokers charge CFD costs, such as spreads, holding fees, and commissions. They might also charge other trading costs or non-trading fees (e.g., withdrawal or deposit fees). If there are too many trading fees involved, trading on such a platform might not be profitable.
- Range of tradable CFD assets: Typically, the more assets there are available for CFD trading, the better. Search for brokers that offer a wide range of CFD trading instruments to have more flexibility and trading opportunities to diversify your portfolio.
- User experience: Finally, be sure to consider user experience. It might not look important to some, but choosing a platform that’s easy to use and provides you with numerous research and trading tools can significantly boost your trading experience. The same goes for device compatibility. For instance, if you want to trade CFDs on the go, be sure to choose a broker that supports mobile trading.
Summing up our guide to the best CFD brokers, it’s clear to see why CFD trading has become such a popular activity among online traders, who aren’t discouraged by the increased risk involved in trading CFDs. However, before you perform your first CFD trade, you must first choose a reputable broker. As covered, it does require some consideration and research.
We hope that the above guide will help you find the perfect CFD broker to suit your trading needs. Having tested all the platforms above, we can only guarantee each one will provide you with an exceptional experience. The final choice, however, is yours, so be sure to analyze each broker before you make your decision. To help yourself with that, be sure to visit our review page, where you will find in-depth broker reviews, including the platforms listed here.
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