Compare the best CFD brokers for trading
Looking for the top-rated CFD brokerages in 2020? We compare all the most trusted CFD trading platforms, looking at the details that really matter, including price, leverage, spreads and trading conditions.
This guide and our course to CFD trading takes you through all the key criteria and explains the terms you need to know before you get started.
Where can I find the best CFD trading platforms?
You can find them right here. Our website enables you to shop for CFD providers, listing all the most important selection criteria at a glance.
What are CFD brokers?
CFD brokers are companies that provide platforms for their clients to trade financial assets, on the basis of a ‘contract-for-difference’. In other words, brokers provide trading platforms that allow you to trade CFD assets such as stocks and shares, indices, commodities, currencies and cryptocurrencies without the need for the physical delivery or exchange of the underlying asset.
Essentially, they bring together the buyers and sellers of such assets so that they can trade freely in a transparent and regulated environment.
What is CFD trading?
Trading on CFDs is the online trading of financial assets in which traders aim to profit from the difference in the price of the underlying asset, without physical delivery or exchange of that asset taking place between buyer and seller.
The assets in question are the regular financial instruments that are traded in the underlying financial markets. The trader takes a long position with the expectation that prices will rise, or a short position if they expect the prices to fall.
“CFD” stands for “Contract for Difference”, which means that the trade is made on the basis of taking out a trade contract with the counterparty, in which you setup the trade with a certain amount of capital. Your profit is the price differential between the price you paid on trade commencement and the price of the asset at the time the trade is terminated.
So if you buy an asset for, say, £1.50 per unit and you buy 100 units of the asset, the entry price would cost you £150. If the price rises to £2.10 per unit, the position would be worth £210. Therefore, your profit (as per the contractual difference between the entry and exit price) would be 210 – 150 = £60.
Usually, long trades entail buying an asset from the counterparty, and reselling it at a higher price to the same, or a different, counterparty.
Similarly, if you sell an asset for £400 and the price falls to £230, your profit would be the difference between 400 and 230, which is £170. Usually, selling a CFD asset using a short trade involves borrowing the asset from the broker and selling at a high price (£400 in this example), then buying the asset once more at a lower price (£230), then returning the asset to the broker and pocketing the difference between the contract prices. This is why contract-for-difference trading is all about trading the price differences of the assets being traded.
How do CFD broker platforms work?
The principal aspect of CFD trade is that no exchange of the underlying asset takes place. The participants in the trades are only trading the difference in prices of the contracts. These contracts are based on the prices of the underlying assets themselves.
For instance, the contracts on Gold are based on the actual trading values of gold on the primary exchange where it is traded, which is the COMEX exchange in London.
If a trader is trading crude oil, there is no exchange or delivery of crude oil. Rather, the platform establishes the CFD contract on crude oil based on the price of crude oil on the New York Mercantile Exchange (NYMEX) or the Intercontinental Exchange (ICE).
The function of the CFD broker platform is therefore to provide the trader with access to the market where the assets are listed, with prices drawn from the underlying exchanges. The trader can then place various types of orders for the asset classes listed on the trading platform.
Whenever an order is placed, the order is matched by the broker using a dealing desk to ensure speedy execution, using a counter-order in the same quantity as the trader’s request.
So if a trader places a BUY order for an asset, the order is transmitted through the front-end of the trading engine (such as the MT4 desktop or mobile client). It gets transmitted to the back-end of the software at the dealer’s dealing desk, where it is matched with a SELL order of the same quantity. Once executed, the execution order is transmitted back to the front-end, where it shows the trader that the order has been executed. The whole process lasts just milliseconds.
So I don’t technically ‘own’ the assets I’m trading on a CFD platform?
Therefore, you don’t have to bother with the logistics of transporting your assets to a point of exchange or worry about the safety and security of the assets. You only trade on the underlying price changes of each asset so you can perform trades faster and take advantage of price fluctuations much quicker.
Trades on CFD platforms are also leveraged, so you don’t need a large capital outlay to trade CFDs, as opposed to futures trades where you need to own the asset and pay the full amount required for such contracts.
What should I look for in a CFD brokerage service?
There are many things to look out for, we recommend these as your core focus when picking the best CFD provider:
- Use a regulated platform – All of your trading activity in the United Kingdom is regulated by the Financial Conduct Authority (FCA). Regulation provides safety for market participants and ensures that those trading with CFD brokerages in the UK are protected.
- Payment Method Variety – Variation in payment methods allows the user of the CFD platform great choice in deciding how to fund or withdraw from the trading account. No longer are users stuck with the old methods that are slow and cumbersome. When trading CFDs, you typically get convenient deposit methods such as credit/debit cards and e-wallets such as Skrill, Neteller and PayPal.
- Large Asset Selection – The best CFD provider will have a large number of assets, providing you with flexibility in terms of what you can trade. Is the currency market in a slow march? You can switch over to stocks or indices. Choose brokers with a large asset selection such as stocks, bonds and more and you won’t get stuck in non-performing markets.
- Good reputation – CFD brokerages may have a good offering but if their user experience leaves something to be desired they’re probably best avoided. Always check for online reviews provided by real, verified users. This step can save you a lot of trouble in the long run.
- Ease of use – The top CFD trading platforms are well-designed and pleasing to the eye. Badly designed platforms can be counter intuitive to use and induce visual fatigue over long periods of use. Speed and ease of use are vital factors when you’re trading.
- Demo account – Many brokers offer demo accounts to test your skills in a ‘false’ market environment. It mimics the real world, but your balance is essentially fake. Start with £100 or £100,000 and trade away!
Will I have to verify my CFD broker account?
Yes. International financial regulations require that CFD brokerages must verify the identity and residence of all clients on their platforms. Some may go a step further to ask you for statements of accounts from where your trading funds will come from. In this age where there is a concerted global effort to curb terrorist financing and laundering of illicit funds, it is imperative that you prove you are not engaged in any actions associated with both. CFD is a regulated industry, and providing your identity with and residence with a government-issued ID such as an international passport/drivers’’ license or a utility bill/bank statement will suffice to verify your account.
Is online CFD trading secure?
CFD online trading is very secure. Many CFD brokers have implemented a segregated accounting system for their clients where the primary trading capital is lodged in the members’ area, and only deployed for trading on the trader’s express requests. Some of these processes are now protected using 2-factor authentication (via SMS or email). Furthermore, many platforms use very high-grade encryption protocols to protect all user information entered on their websites.
What if I forget my password?
Password recovery on most CFD trading accounts goes beyond a simple request to reset your password. A multi-step authentication process is typically used to ensure that it is the account owner, and not a hacker, who is trying to recover a lost or forgotten password.
When changing or recovering a lost password, make the password as complex as possible, using a combination of upper and lower case letters, numbers and special symbols to increase the strength of those passwords. Never use your date of birth, simple number sequences or letter sequences (such as “12345678” or “qwerty” from your PC keyboard) or easily guessable characters as passwords.
Can I trade multiple assets with CFD platforms?
This is the very essence of CFD trading platform: the ability to trade multiple assets from at least four different asset classes that span stocks, indices, commodities and currencies. Some CFD trading platforms will add bonds and interest rate-based assets to the mix. So you can trade multiple assets with the best CFD broker.
Do CFD trading platforms charge fees for trades?
There are no commission fees but a rollover fee will be applied for keeping your trades open overnight or over the weekend. Sometimes flat-rate withdrawal fees are applied.
What are the advantages of using a CFD broker?
CFD brokerage platforms allow you a number of advantages:
- You can trade almost any popular asset without having to own or physically deliver that asset.
- CFD trades are leveraged, allowing you to use a small amount of collateral to control large positions.
- Spreads are usually low and trades are commission-free.
And what are the drawbacks?
CFD trading has recently come under severe leverage restrictions from the European Securities and Markets Authority (ESMA), of which the FCA is a member. Therefore, CFD brokers in the UK have started to apply restrictions, reducing leverage – which used to be as high as 1:500 – to 1:10 for stocks and 1:5 for cryptocurrency CFDs.
Should I use a CFD broker platform?
The trading platform is the best way to trade assets from multiple different asset classes on one platform. So, rather than opening trading accounts all over the place in an attempt to broaden your trading base, you can easily use a CFD trading platform to harness all the assets you want to trade within one account. This makes it easier and more manageable to handle.
Furthermore, all CFD trading platforms in the UK are regulated and you’ll be enrolled into the Financial Services Compensation Scheme (FSCS) when you open an account. This is a form of trader insurance contributed by the broker on your behalf. The scheme provides for a maximum compensation of £50,000 to traders whose monies are lost as a result of broker insolvency or liquidation.
Yes. Most CFD broker platforms are mobile enabled. You can either trade on mobile apps which are available from the Google Play or App Stores, or you can trade on web-based versions which are optimised for mobile display and use.
Trading CFDs affords the trader the opportunity to short assets in addition to buying and reselling at a higher price. Shorting an asset requires you to click the SELL button on your platform to benefit from falling prices.
Yes, in the UK CFD platforms are regulated by the Financial Conduct Authority (FCA). In other countries, other regulators take on the role of regulation. For instance, the Cyprus Securities and Exchange Commission (CySEC) performs this function for Cypriot-based CFD brokers. Make sure to check for the FCA approval when picking the best CFD broker (UK). You can do it on our company review pages.
Most retail traders do not have the financial capacity to trade CFD assets in their full contract specifications in the underlying markets. Therefore, CFD trading represents the easiest way to trade many of these assets in a low-cost, leverage-enabled manner. So yes, a regulated brokerage represents the best way to buy and sell assets for most retail traders.
Yes, in the UK it remains legal to conduct online CFD trading. The ESMA rules have confused a lot of people and many have misinterpreted the “CFD restrictions” to mean an outright ban by ESMA. The only difference is that CFD brokers now have new guidelines relating to how their products should be marketed and offered to their clients.
PayPal represents one of the payment channels offered by brokers to users from selected countries. So you can transfer your trading funds from a CFD trading account to your PayPal account. The best part is that it can be done within an hour, assuming all proper verifications have been done.
The Financial Services Compensation Scheme (FSCS) is a form of trader insurance which has been created to help users mitigate against situations like this. If you are using a UK CFD platform regulated by the FCA, then you should be covered to the tune of a maximum of £50,000. Such protection may not be available for nationals of other countries or for people who use CFD trading brokers domiciled outside the UK.
No, using a CFD platform is not anonymous. All users must be known and verified using a government-issued ID card (international passport, national ID card, drivers’ license etc.). In addition, you will be required to submit a document proving your address. This can be a bank statement or a utility bill. It is actually against the law to operate a CFD trading account anonymously and no broker will allow you to do so.
Minimum deposits and withdrawals are usually set for each payment method. Often, bank wires are unrestricted in terms of the maximum amount you’re allowed to deposit or withdraw.
For credit/debit card and e-wallet methods, there are maximum and minimum deposit/withdrawal limits. The minimum deposit/withdrawal limits tend to be lower than for bank wires, since these methods do not attract heavy charges. The exact amounts set as minimum and maximum limits are decided by each CFD broker.
Trading limits refer to the maximum amount you can invest in a position. CFD trading brokers generally place limits on how much you can invest in a trade. This is because trades are usually settled at the dealing desk and if traders have unlimited investing capacity, it may overwhelm the dealing house’s ability to settle these trades or to match buyers/sellers with a counterparty. The trading limit will differ from one CFD provider to another.
Yes. One of the benefits of using a CFD provider is that you can see the full history of your past trades. You’ll have access to a raft of historic information, including your entry and exit price levels, lot size, the duration of each trade, type of order used, etc. Some CFD platforms enable you to sync this history with third-party sites that conduct trade analytics, such as Myfxbook.
Yes, it is possible to switch from one CFD platform to another. You are also allowed to operate with multiple platforms at the same time should you wish.
Only few brokers such as LiteForex and FXChoice allow the use of cryptocurrencies as a deposit/withdrawal method. Otherwise, fiat currency deposits are still required by most CFD brokerages.
In the UK, if you earn above a certain threshold from your trading activities as a profit, you will be liable to pay capital gains tax. CFDs are classified as “chargeable assets”. If you make above £11,700 in the course of a year as profit, you will pay a staggered figure (depending on the level of profit) of between 10% and 20%. This is the only tax you will pay in the UK. If you reside outside the UK, you may be liable to pay other taxes prescribed by your tax authorities.
- 1. Compare the best CFD brokers for trading
- 2. Where can I find the best CFD trading platforms?
- 3. What are CFD brokers?
- 4. What is CFD trading?
- 5. How do CFD broker platforms work?
- 6. So I don’t technically ‘own’ the assets I’m trading on a CFD platform?
- 7. What should I look for in a CFD brokerage service?
- 8. Will I have to verify my CFD broker account?
- 9. Is online CFD trading secure?
- 10. What if I forget my password?
- 11. Can I trade multiple assets with CFD platforms?
- 12. Do CFD trading platforms charge fees for trades?
- 13. What are the advantages of using a CFD broker?
- 14. And what are the drawbacks?
- 15. Should I use a CFD broker platform?
- 16. FAQs