Looking for the best CFD trading brokers in 2020? We compare all the top CFD trading platforms, looking at the details that really matter, including price, leverage, spreads and trading conditions.
Our guide 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 all the best CFD trading platforms right here. Our website enables you to shop for the best CFD trading platforms, listing all the most important selection criteria at a glance.
What are CFD trading brokers?
CFD trading brokers are companies or firms that provide platforms for their clients to trade financial assets on the basis of contracts for difference (CFDs). In other words, CFD brokers provide trading platforms that allow you to trade CFD assets such as stocks, indices, commodities, currencies and cryptocurrencies without the need for the physical delivery or exchange of the underlying asset.
CFD brokers 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?
CFD trading 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 CFD trading is all about trading the contract price differences of the assets being traded.
How do CFD broker platforms work?
The principal aspect of CFD trading 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 CFD 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 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?
Technically speaking, no assets are owned by any trader on a CFD platform. So you do not own gold, silver, platinum, stocks, or any assets on the 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:
- Use a regulated platform – All CFD 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 brokers 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. CFD trading typically offers convenient deposit methods such as credit/debit cards and e-wallets such as Skrill, Neteller and PayPal.
- Large Asset Selection – CFD platforms with a large number of assets provide 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 CFD trading brokers with a large asset selection and you won’t get stuck in non-performing markets.
- Good reputation – CFD trading brokerages may be have an ostensible 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 – You want a platform that’s 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 trading brokers 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 trading 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?
Online CFD trading is very secure. Many CFD trading 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. Our reviews will provide insight as to the best CFD platforms.
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 trading broker platforms?
This is the very essence of CFD trading: 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 CFD trading broker platforms.
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 CFD 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 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.