The Contract for Difference space has become the new buzz word among traders looking for alternative investment options. The space is ideal for investors who want to speculate on a range of financial products without buying the underlying assets.
There are currently hundreds of leading CFD brokerage platforms operating on the market, however, because of scams and fraudulent websites, it is important for new traders to find reputable brokerage firms and make sure they choose the one best suited to their needs. We’ve found over 10 reputable firms and have curated enough information for a new trader to make an informed decision.
What is CFD Trading?
CFD trading is short for Contracts for difference trading. It refers to a form of derivative that allows traders to speculate on the price movements of global money and markets, including indices, forex, treasuries, cryptocurrencies and shares. A CFD trading agreement exists between a trader and broker. The trader and broker have to enter into a contractual agreement. Both parties will have to agree to mimic live market conditions and settle trade differences between the opening and closing of a trade.
How Does CFD Trading Work?
CFD trading allows a trader to make a profit if a market moves up or down. Trading in CFDs is a flexible alternative to traditional ways of trading. The trader is able to trade on the price of an asset, rather than buying the asset. This way, the trader can yield profits from underlying markets rising in prices and those failing in price. One of the unique features of CFD trading is that traders are allowed to trade from one trading account on the prices of different underlying assets, including shares, currencies, indices and commodities.
The Best CFD Brokers for 2020
24Option is managed by Rodeler Limited, a Cyprus-based Investment Firm. It offers new traders a user-friendly platform, that is aimed at a quick and easy trading experience as well as a mobile trading app. New traders may choose from multiple trade types and assets. Profits will vary based on the underlying asset performance, however, the platform does have very low spreads when compared to its competitors. Traders will be able to select the underlying asset that they want to trade with from a list, or by searching the class or category, on a drop down menu. The trading window will always be visible, right next to the list and will update as soon as a different underlying asset or stock is selected.
Pros & Cons of 24Option
|✔️ Traders have access to daily financial news on the 24Option Twitter Feed.||❌ The desktop and mobile app do not have live streaming news.|
|✔️ Has a range of educational resources for new and experienced clients.||❌ 24Option has high withdrawal fees.|
|✔️ A pip value calculator that shows exactly what your profit or loss will be with each pip move||❌ No fundamental research.|
101Investing is a fairly new Cyprus based CFD broker, founded in 2016, which offers access to more than 250 CFDs on its platform. This includes forex, cryptocurrencies, commodities, stocks and indices. The company behind the platform is a subsidiary of FXBFI Broker Financial Invest Ltd and is also a member of the ICF(Investor Compensation Fund). 101Investing also offers clients prominent features such as a demo account, high leverage, a wide range of tradable assets, responsive customer service and competitive prices. Clients have access to the globally recognised MetaTrader 4 trading platform for web, PC and mobile, as well as trader educational content, videos, tutorials, articles and courses.
Pros & Cons of 101investing
|✔️ Regulated brokerage firm||❌ Not the tightest spreads|
|✔️ User-friendly platform||❌ No daily market analysis.|
|✔️ Multiple account options and funding options.||❌ No social trading feature|
EuropeFX is a Forex and CFD broker based in Cyprus. As mentioned, the broker has been in operation since 2013. It is reported that the company has had huge successes even though it is considered to be relatively new on the market. EuropeFX offers clients innovative trading tools such as MetaTrader4 platform, HTML5 Webtrader and EuroTrader 2.0. The broker also supports social trading through Mirror Trader and automated trading via RoboX. EuropeFX offers traders over 300 tradable assets and exposure to a variety of markets. The broker also has a second office in Germany.
Pros & Cons of EuropeFX
|✔️ Cysec regulated broker||❌ Unclear range of payment options|
|✔️ Offers more than one functional and efficient platform||❌ Limited customer support hours|
|✔️ Professional 24/7, multilingual service to customers|
eToro is a well-known fintech social trading broker. The company was established in 2007 and is based in Israel. It is reported that eToro is one of the world’s largest social trading and investment companies in the world. eToro has millions of clients in over 140 countries. Initially, eToro was a graphic-intensive forex platform, which has now integrated tools for crypto trading. Clients who are not in the US can trade additional asset classes such as CFDs and stocks on a variety of exchanges. The platform is a breeze for investors who have a basic understanding of cryptocurrency trading.
Pros & Cons of eToro
|✔️ Over 14 different cryptocurrencies that can be traded 24/7. Including Bitcoin, Ripple, and Ethereum, but also eos, Iota, Tron, and Tezos.||❌ $25 minimum to buy cryptocurrency. This makes it difficult for smaller trading accounts to spread their balances.|
|✔️User-friendly website interface. The mobile app is just as user-friendly and can be navigated with ease.||❌ Wide spreads for trading cryptocurrency. Trades are executed with specific spreads that vary from coin to coin. Some of these spreads are fairly wide.|
|✔️ Great community for cryptocurrency traders. Traders can learn from one another and share recommendations.||❌ Copy trading only requires a minimum fee. Most require a minimum of $200 for each copied trade, which is relatively high.|
|✔️ Free stock and ETF trading in the EU.||❌ There is a withdrawal fee of $5|
Plus500 is a leading online Contract for Difference (CFD) trading platform that is owned by a holding company called Plus500 Ltd. The company is listed on the Main Market of the London Stock Exchange (LON: PLUS) and operates through 3 different subsidiaries:
- Plus500UK Ltd,
- Plus500CY Ltd and
- Plus500AU Pty Ltd.
Plus500 (or subsidiaries) are regulated in several different jurisdictions around the world, making the brand synonymous with reliability and safety. In addition to being regulated around the world, Plus500 is also an active sponsor of professional Soccer and Rugby teams. The firm have been the official sponsor of Club Atletico de Madrid since 2016. They also added Legia Warsaw and Atalanta to their list during 2020. Traders can earn a first deposit bonus on their initial deposit, up to a maximum of $10,000. Additional leverage of up to 1:300 is also available.
Before we go into detail about the Pro’s and Con’s of Plus500, let us quickly give you a brief background about CFD trading.
Pros and Cons of Plus500
|✔️An established CFD broker in the space – listed on the London Stock Exchange.||❌ Lack of fundamental news analysis.|
|✔️ Low trading fees and tight spreads||❌ Leverage financing fees expensive|
|✔️ Regulated by the UK’s FCA|
FXTB is a CFD broker running on the user friendly Scipio trading app. The trading app is well liked by new day traders and investors due to its simple interface and intuitive design. Experienced Forex traders will be able to download the industry standard MT4 trading platform.FXTB offers over 250 underlying assets for trading, and their margin rates are limited to 30:1 as per the European Union laws.
As a European broker, FXTB’s website is localized and developed in multiple languages including English, German, Spanish, Italian, Swedish, and Netherlands. You can have your trading account denominated in these currencies; USD, EUR & GBP. Demo trading accounts are available at ForexTB, and the minimum deposit for a Basic level trading account is $250. Behind the ForexTB brand is a Cypriot investment company; it has a license from the Cyprus Securities and Exchange Commission.
ForexTB provides its users with the tools needed to reach their potential. Their education center on the website provides thorough materials on Forex, commodities and more. They offer trading analysis, leverage and margin, and market news along with Trading Center market alerts and advanced study.
Pros & Cons of FXTB
|✔️ Comprehensive education centre.||❌ Unclear range of payment options|
|✔️ Daily signals & financial news||❌ Limited customer support hours|
|✔️ MT4 trading platform||❌ Lack of social trading.|
FXVC was founded in 2014 and it is an official Leeds United Platinum Partner. The broker is regulated by the Cyprus Securities and Exchange Commision (CySEC), under Centralspot Trading Limited.Traders have the option to choose from five different minimum deposit amounts and added benefits such as discounts, access to trading signals and other additional resources.
Pros & Cons of FXVC
|✔️ Regulated brokerage firm||❌ Limited assets and instruments|
|✔️ User-friendly platform||❌ Limited trading tools|
|✔️ Daily trading newsletter||❌ No MetaTrader4 platforms|
|✔️ One on one academy|
|✔️ Daily & weekly market review|
Alvexo is an online trading platform offering a range of tradable assets, multiple accounts, and varied educational resources. Here we’ll explore the broker’s trading platform, mobile app, signals offering, and more. Alvexo was founded in 2014 and is owned by VPR Safe Financial Group Ltd. Its headquarters are in Limassol, Cyprus, the company also has an office in Paris.
Alvexo boasts over 450 tradeable instruments and has thousands of clients worldwide, from France to Singapore and the UAE. The broker is the official partner of Norwich City FC. Alvexo is registered with the Cyprus Securities & Exchange Commission (CySEC) and the Financial Services Authority (FSA) of Seychelles.
Pros & Cons of Alvexo
|✔️ Firmly regulated by exchange commission cysec||❌ No availability for the USA|
|✔️ Well-equipped educational resources with broker assistance||❌ Lack of transparency to the critical accounts.|
|✔️ Micro lots and CFD trading||❌ Limited payment methods with broker demanding commissions|
|✔️ STP/NDD brokerage model||❌ High commission on ECN account|
|✔️ Negative balance protective option|
UFX is an online straight-through-processing (STP) brokerage firm that provides customers with a trading platform for Contracts for Difference (CFD) trading. CFDs are derivative securities that allow traders to speculate on the price of assets without actually holding them in their accounts. UFX provides its customers platforms for trading forex and CFDs on indices, commodities, shares, ETFs and cryptocurrencies.
UFX is operated by Reliantco Investments Limited. The privately held firm based out of Limassol, Cyprus, was granted a license to operate in Cyprus on December 22, 2010. The firm was first established in the United Kingdom on November 30, 2013, under company number FC031723. It closed its UK presence on November 6, 2017. UFX is duly registered under the laws of the Republic of Cyprus with Registration Number HE 270726, having the necessary license and authorization by the Cyprus Securities and Exchange Commission (CySEC) with license number 127/10. UFX has headquarters at Reliantco Investments Limited in Limassol, Cyprus. The firm also has a branch office in the Czech Republic.
Pros & Cons of UFX
|✔️ Account trading history||❌ Limited payment methods with broker demanding commissions|
|✔️ Daily Market Review & Financial Analysis||❌ High commission on ECN account|
|✔️ Economic Calendar||❌ Lack of transparency to the critical accounts.|
|✔️ Negative balance protective option|
10. Trade 360
Basically, Trade360 capitalizes on cognitive research, which explores the possibility that a crowd will make better choices than individual professionals. It has been reported that Trade360 appeals to millennial traders who prefer a social approach to trading. The broker uses CrowdTrading technology and the MetaTrader 5 platform, which is popular among brokers all over the world and it appears that traders feel more comfortable trading on these platforms.
Pros & Cons of Trade 360
|✔️ Regulated by the CySec authority.||❌ Unfortunately, Trade360 is not available to Iran, Canida and the USA.|
|✔️ Traders have access to the MT5 and brokers proprietary online platform.||❌ No trading academy or academic resources.|
|✔️ CrowdTrading technology is available, which provides the trader with useful information on other traders sentiments.||❌ Higher spreads compared to other brokers.|
|✔️ Six different account types and deposit options.||❌ No binary options available.|
|✔️ Negative balan ce protective option|
Exness Group was founded in 2008 and is regulated and licensed by the UK Financial Conduct Authority, the Cyprus Securities and Exchange Commission (CySEC) and the Financial Services Authority of Seychelles. According to the official Exness website, the group is considered to be an industry leader, offering traders the opportunity to trade a wide range of asset classes, including Forex, CFDs, Cryptocurrencies, Metals Energies, Stocks and Indices. It is reported that the Exness group has more than 100,00 active traders and posts key performance indicators on its website.
|✔️ Segregated client funds.||❌ Limited range of instruments when compared to its competitors.|
|✔️ Regulated by CySEC and the FCA.|
|✔️ Fast digital account opening.|
|✔️ Practice Demo Account.|
Factors Influencing CFD Trading
A spread refers to the difference between a market bid and ask prices. When an investor enters a trade, they will have to pay the ask price and upon closing the order, they will receive the bid price. Markets like forex often have lower spreads while low liquidity markets have high spreads, such as EUR/USD currency pairs. The higher the spread the lower the profit a trader will make.
Leverage refers to the amount of borrowed capital that a broker is willing to advance in order to execute big trades. Leverage is expressed through ratios such as 1:200 or 1:300. This basically implies that for every dollar the trader deposits, the broker will multiply the deposit a two- hundred or three- hundred times.
3. Slippage and Requotes
If a trader wishes to enter the market by depositing $250 as a minimum deposit, but the markets fluctuate by the time their broker receives the order, they may send a requote, since they won’t be able to enter into trade at the desired price of the trader. Slippage refers to a marginal difference between the price the trader wishes to enter or exit a trade and the actual price of the order on the market.
Hedging occurs when a trader opens a position that goes against a current open position. For example, if a trader has an open position on Apple, and then desires to short Apple, since the price is volatile, then the trader can hedge Apple, by opening a short position. Both positions will be open simultaneously.
How to Use a CFD Platform
Once a trader has selected their preferred broker, registered an account and made a deposit, the trader must ensure that they know as much as possible about CFD practices and how these platforms work. Here are some key factors to take into consideration:
- Choose a market: the trader needs to choose their preferred market, this may be shares, indices or cryptocurrency.
- Choose the CFD asset: once the trader has selected their desired market, they will then need to choose the asset they want to trade.
- Determine whether you want to go Long or Short: the trader has the option to go long, which means that the trader speculates the asset going up in value, or go short, which means that the asset will lose value.
- Set-up stop losses: the stop loss feature will protect the trader against potential losses. It automatically closes a trade when the value of the assets reaches a certain position.
After reading our guide, you should have a better understanding when it comes to CFDs and the many factors that you need to consider when choosing the right CFD broker. Unfortunately, there is no one-size-fits-all approach when it comes to choosing a broker. It is important that you do all the necessary research before choosing a broker, including reading up on user-testimonials before signing up.
- Which online trading company should I use to buy stocks
There is no straightforward answer to this, since each trading platform has its own advantages and disadvantages. We recommend using a CFD broker.
- Can I buy stocks online?
There are a range of brokers who can assist you in buying stocks online.
- Can I trade stocks without a broker?
Yes. However, this can be complex to understand and can result in huge losses. We recommend using a CFD broker to help you to buy stocks.
- What assets can CFDs be used to purchase?
Most asset classes can be represented in the form of a CFD
- What does going “short” mean?
Going “short” means that you have speculated on an asset losing its value. If and when it does, you will make a profit.
- What does CFD stand for?
CFD means Contract for Difference.
- Are CFDs high risk?
Any investment carries a considerable amount of risk. We suggest doing your research and choosing a reputable CFD broker.