Picking the right CFD broker

Below you will find a few examples of factors to take into account when selecting your CFD broker. There are a lot of brokers available online today and getting the right fit for you can make or break your investment strategy for CFD.

How is the broker making money?

Brokers are for-profit businesses that need to make their money somehow. For us clients, it is important to know how the broker is making money from us. Here are a few points to check out:

  • Is the broker charging a commission (fee) on each trade? How is the commission calculated? Is it a fixed fee or a flexible fee, or a combination of both? Is there is minimum commission charged on each trade regardless of trade size?
  • Is the broker making money from the spread? The spread is the difference between the sell price and the purchase price. Keep in mind that spreads can vary between different CFD with the same broker.
  • Are there any monthly fees or other regular fees associated with this broker?

It is important to take the all costs into account when comparing different CFD brokers. That broker company that is marketing itself as the ”no commission broker” might not be your best choice if there are outrageous spreads. And that no-spreads broker might charge a hefty commission on each trade.

It is not possible to select one CFD broker and say ”this one is the best” since your individual trading style will have such a huge impact. If you are doing numerous small trades each day, a CFD broker that charges a big fixed commission on each trade will run through your bankroll like wildfire. If you on the the hand is interested in making a few big trades each month, a CFD broker with a fixed commission per trade might be better than one who charges you a percentage.

Trading

Is the range of available CFD:s to your satisfaction? Does it cover the underlyings you prefer? Is the price range suitable for your bankroll and trading strategy? Is it easy to find the CFD you’re looking for?

Platform basics

  • Is the platform easy to use?
  • Does it load quickly?
  • Is it bug ridden?
  • Does it work well on your devices?
  • Does it contain the features that you want?

In the quick paced world of CFD-trading, you don’t want to use a platform that freezes up or delays you trades, or one that is so user unfriendly that you accidentally click the wrong buttons and lose money.

Ideally, check out the platform using a free demo account before you make any deposit. Play around with play-money and try to figure out if this platform is suitable for you, your trading style and your preferences.

Margin / Leverage / Credit

Many CFD traders borrow money from the broker to execute their traders. This is known as using leverage. Margin is the percentage of the overall trade value that you must have deposited with your broker in order to open a position.

Example: You have $100 in an account with a CFD broker that offers 20:1 leverage. This means that the margin is 5% and that you can open a $2,000 position. You can buy CFD for $2,000 even though there is only $100 in your account. It also means that you can end up owing the broker more money than you ever had in your account.

Using leverage is risky, but also highly appealing since you don’t need to keep a lot of money locked into your investments. If you are interested in using leverage, check what the various CFD brokers have to offer you before you sign up with any of them.

Deposits and Withdrawals

  • Is the CFD broker accepting deposits and withdrawals through methods that you are comfortable using?Please note that many brokers have a more limited selection of withdrawal methods than deposit methods.
  • What are the costs / fees associated with your preferred methods for depositing and withdrawing money if you pick this CFD broker?
  • What are the deposit and withdrawal limits? (Per transaction, per day, per week and per month.)
  • What proof of identity will you be required to show to have your withdrawals approved? Is there a specific limit where the rules regarding withdrawals become more stringent?
  • Does this CFD broker have a good reputation among online traders when it comes to withdrawals? Or does this broker take forever to process withdrawal requests? May sending clients on a wild goose chase where they are required to prove their identity above and beyond what’s required by law?

News & Analysis

Do you want relevant market news and market analysis to be delivered to you directly on the platform? Or do you prefer to seek outside information and advice only?

Some platforms are better than others when it comes to delivering news and analysis. Check out both the quality of the content and how it is presented. You don’t want it to clutter up your screen in an intrusive way.

Will the platform you’re interested in allow you to customize the news shown to you, e.g. limit it to news concerning certain markets, geographical regions, etc to avoid information overload? Is it easy to change these parameters as your needs evolve?

Charts and technical analysis

If your trading strategy involves the use of charts and technical analysis, it can be convenient to pick a platform that is adapted for this. Some brokers offer great in-house charting facilities and technical analysis tools for their clients, and also makes it very easy to implement trading strategies based on input from charts and TA-tools.

Education

Some brokers and platforms have a lot of high-quality educational material and training guides available for their clients. Others limit their offer to a few guides about how to use the platform, and doesn’t offer much for clients interested in learning new trading strategies, finding out more about technical analysis, etc.

How do you prefer to learn? By reading texts like this one? Or would you rather be looking at mathematical and statistical charts? Watching videos and webinars? Maybe listening to audio books and lectures? Or perhaps you thing is hands-on trial and error trading with a demo account? Make sure you pick a platform that is suitable for you, if you want to hone your skills on the platform and not seek out third-party options.

Warning: When a broker makes more money to more you trade, you are likely to find a lot of trading strategy guides on the platform that encourages very frequent trading.

Support

  • When is the support open? Is this when you usually engage in trading? Will you be able to contact the support without waking up in the middle of the night in your time zone or take 30 minutes off from work to place a call?
  • How do you prefer to interact with the support team? Do you want to call them or do you prefer brokers with a call-back service? Email support? Live chat support? When is the support open for these various options?
  • What support languages are offered? Is the support staff actually fluent in these languages, or will you be stuck in a live chat session trying to explain something to a clerk who is obviously using a third-rate automatic translation program?
  • If you want phone support, what will it cost you? Is there a toll free number available (from your country)? Can you make an ordinary domestic call? Or will you be stuck paying for an expensive call to a foreign country?

Some CFD brokers have solved the problem by offering a call-back service. You send them your phone number by email, live chat or PM within the platform and they call you back. They get to foot the bill for the call, and you never end up stuck in a phone queue.

Regulation and reputation

Does the broker and the platform have a good reputation among other traders?

Is it clear who is in charge and responsible for the business, or is it a maze of parcelled out responsibility between a platform owner, a platform runner, a brokerage company, various marketing companies, separate brand owners, etc?

Which jurisdiction is applicable?

Is the CFD broker licensed? By whom? Is this a reputable licenser? Is the licenser a governmental agency or something else?