How should a UK trader compare CFD brokers? And, equally, how can they identify the best broker? There are a variety of regulated and secure brokers offering CFD (Contracts For Difference) trading – but what makes one “better” than another?
The answer will often require the trader to ask questions of themselves first and foremost. The best CFD broker for one trader, will not necessarily be the best choice for another.
Here we list some key details from the hand picked brokers reviewed on this site. Below that, we highlight some of the key areas where CFD brokers differ from one another, and how a trader might compare them. The needs and trading style of each trader will be different, so there is no single broker that will represent the “best” choice for all traders. Read on to find out which broker suits you best.
We cover each section in detail below.
The spread or commission fundamentally impacts every trader. It is effectively the ‘cost’ of making the trade. It is therefore a very significant value to compare one broker to another. There are complications however. The spread will differ broker to broker – but also asset to asset. So a broker may have the smallest spread for Forex pairs, but the largest for indices. Depending on what assets a trader wanted to invest in, the broker might be the cheapest choice – or the most expensive. So when comparing brokers based on the spread, ensure you are checking the spread on the assets you will be trading most. (A sample of the spreads and commissions charged are shown above for each broker, simply expand each heading by clicking on the broker name.)
The margin is the percentage of the overall trade value that a trader must deposit (and commit) in order to open a trade. So a £1,000 trade on the GBP/USD currency pair may only require a deposit of £50. The position however, has exposed the trader to £1,000 worth of risk (the risk of losing the entire investment is extremely small, but that is the value of the position) – hence the warning attached to CFD trading “losses can exceed your initial deposit“. Margin is also referred to as ‘leverage’. Where this is the case, the leverage is often illustrated in terms of multiples – so 200:1 would indicate leverage of 200 times the deposit. The equivalent margin would be 0.5%. So when comparing brokers, a low margin requires smaller deposits. This will be important to some traders, but less so to others.
The actual trading platform is often not considered before a trader makes a broker choice. That however, could be a mistake. Yes, most platforms will have similar functions – but as with anything, the usability and look and feel will be a matter of personal preference. It is very important to be trading on a platform that is familiar and easy to use. It is not uncommon for traders to miss prices, or worse, make mistakes trading, because the trading platform did not suit them for whatever reason. The ‘Cancel‘ button might be blindingly obvious to some, but if you are the trader that ended up entering a trade by mistake, you might wish you had based a broker choice on the simplicity of the trading platform. All of the platforms listed here offer demo accounts – try before you buy.
Perhaps not a trader’s first thought – but if moving money in and out of trading accounts has been problematic for you in the past, it is worth checking that the methods you want to use to fund and withdraw from your account are available with each broker.
If you plan to research your trades on the same trading platform where you ultimately trade, you want to ensure you have the best research tools available there. Charting standards do differ significantly. Some brokers (IG in particular) offer outstanding charting facilities, with a range of technical analysis tools that will satisfy even the most ardent technical analysis experts. The latest news is also available within the trading area, so research can be done from one place. Other platforms seem to assume traders will have already researched their trades elsewhere, and offer pretty basic charts and little in the way of analysis tools. If this is important to you, ensure your potential broker satisfies this need.
Many brokers will offer educational material to their clients. These might include ebooks, webinars or even one to one training where the client requests it. Again, this might be important to some traders but not to others. It is worth noting that brokers make money when traders trade – so most educational materials will encourage lots of trading. Over trading is a common issue for many people, so is worth bearing in mind.
The available support from a broker may be reassuring for some – others may not envisage ever using it. Potential new clients who do like to know they can contact a broker might like to establish the availability and contact methods for the support desk. Most firms offer a high standard of support.
Some other things that enable people to compare CFD brokers might include the quality and availability of a mobile trading application. As ever, trading on the move will be important to many traders – others will be happy to not use a mobile app. Regulation should be a key criteria for any broker. Only regulated CFD brokers are included on these pages, all are regulated by the Financial Conduct Authority, with the exception of Markets.com (Markets.com is operated by Safecap Investments Limited, Safecap is a regulated investment services firm authorised by CySec). This is less of a comparison factor than a prerequisite. Bonuses might also be a factor in a broker decision. The short term nature of these offers however, should mean they rank well down in the order of importance. Taking a worse spread in order to get a larger bonus makes no sense – but any trader who is likely to be successful will already know that.
Our reviews cover all of the factors required to compare CFD brokers, and as mentioned previously, all of the CFD brokers listed on our pages provide demo accounts. So traders can take their time, read the detailed review, and try out the platforms themselves before making a choice. Once you have all the information, you can then decide the best CFD broker for you.
Remember: Traders can use multiple brokers, and use those with the best terms for specific trades or assets.
Click on each broker name to compare firms – We have compared spread, commission and margin rates on like for like assets:
Take a look at several of the most popular trading platforms (Markets.com and ETX Capital to name just a couple), and you’ll see that binary options are not the only trading vehicle on offer. CFD trading (Contracts for Difference) is widely available. It shares certain similarities with the binary option model – but there are important differences to be aware of, too.
So is CFD trading something you should be looking at? Read on to find out…
With a CFD, the ‘Contract’ is between the broker and the individual trader, and the ‘Difference’ refers to the difference between the value of the underlying asset at the time the contract is entered into (the strike price) and its value after the contract is closed. It is essentially an agreement to exchange the difference in these two values.
So a CFD is a derivative product: the trader does not actually take ownership of the underlying asset. Brokers create CFDs in relation to a wide range of individual equities, indices, commodities and forex; the price is determined by market conditions and the timeframe of the contract typically ranges from an hour to a week.
The contract features a ‘buy’ and a ‘sell’ price, with an ability for traders to go long (buy) if they believe market prices will rise, or go short (sell) if they believe market prices will fall.
If the market moves in line with the trade, profits from the contract will rise in line with that movement. Conversely if the market moves against the trade, losses increase.
Both CFDs and binary options enable traders to benefit from small movements in the prices of underlying assets over a short period of time. Both are useful tools for putting your market knowledge to work and taking short term positions.
But there are two important differences to bear in mind:
Take a position in a falling or rising market
In this regard, CFDs perform a similar function to binary options. With the opportunity to go short or long, you have the potential to generate profits no matter what the market conditions (providing, of course, your predictions on direction of movement are correct).
Hedge your wider investment portfolio
Where you are invested in physical shares, your hope and expectation is obviously that they will increase in value. But where there is a very real risk of those shares leaking value, CFDs can play a useful hedging role. So if you hold stocks in a certain company, short selling CFDs based on the same shares can be a useful way of making a profit from any short-term downtrend. In turn, this can partially or wholly offset any loss from the portfolio. This security measure can be an especially useful strategy to adopt in volatile markets.
While share dealing attracts stamp duty liability, the same does not apply to a CFD trade. Depending on your circumstances, any losses incurred may also be used to offset against your capital gains tax (CGT) liabilities.
Leverage and margins
To open a CFD position, it is necessary to deposit an amount in your brokerage account, known as a margin. This ‘position margin’ tends to depend on the size of your position and the type of underlying asset. The good thing about this is the ability to deposit a percentage of the full value of the position, which means your money linked to the position is not tied up in one transaction and can be used for other investments.
The downside is that it is possible not just to lose your initial deposit but also be required to make further payments.
Keeping track of transactions
Failure to ensure you have enough funds in your account to cover total margin requirements could mean that some or all of your positions are closed out. Managing multiple CFD trades requires you to constantly monitor your account, depositing additional funds where necessary.
CFDs offer a dynamic and sophisticated way of trading – although the possibility of losing more than your initial stake mean that it isn’t for everyone.
When looking for a platform, it’s important to opt for a format that you are comfortable with; one that allows you to keep control of your trades and one with a competitive spread – i.e. a narrow difference between buy and sell prices.
Get the full lowdown on trading platforms and find out more about specific brokers such as eToro, CMC Markets and ETX Capital, all of whom offer CFD trading services.
In many ways, Forex trading and cfd trading are the same thing. In both cases, the underlying asset is not owned by the trader. Both forms of trading offer a way for traders to speculate on the price on an asset. When trading foreign exchange – that asset is a currency. So an FX trade is still a ‘Contract For Difference’, it is just being used specifically on a forex pair.
The main differences are in the detail of the trade. Forex pairs are generally traded in a “lot size”. Traders can choose the number of lots to trade and therefore trade the volume they need. With cfd trades, there are no such lots. This is the case, simply because a currency rate is not an ‘asset’ with a value. It is an exchange rate of two different assets. This is why a lot size is used. The only other difference is in the assets being traded. A forex trade is obviously based on a currency pair. CFDs can be traded on a range of assets – including, but not limited to – foreign exchange.
So the differences are small. Whether a broker labels themselves as a ‘Forex broker’ or a ‘CFD Broker’, really comes down too the assets they offer to trade. Forex specialists will generally enjoy tighter Forex spreads, but even that is not always the case.