While stocks, bonds, and forex can be good investments, CFDs (Contracts for Difference) also offer the potential for high returns.
CFDs are leveraged financial instruments, which allow investors to profit from small movements in prices, without purchasing the asset itself.
CFDs are not limited to Stocks or Stock indexes, which are the most common. They are also available for Forex, other commodities like oil and natural gas, and cryptocurrencies.
Check out our roundup of the Best Forex Brokers
Why CFD Brokers Are Needed
Modern Fintech allows investors to trade stocks and CFDs with the push of a button. The days of calling a broker and paying a hefty fee are gone.
However, trading CFDs is considered an advanced strategy, and users need to be aware of the risks. It’s important to find a trustworthy broker who offers a competitive fee structure that matches each trader’s unique needs.
What To Look For in a CFD Broker
Because CFD trading is high risk and isn’t as strictly regulated as other financial instruments, it’s important to be diligent when selecting a broker. Opening an account and getting started is easy with any of the top brokers.
Investors need to consider the following before choosing a CFD broker:
- Is the broker reputable and trustworthy with good reviews?
- Does it have minimal customer complaints? Sites like Trust Pilot and the Better Business Bureau are great places to start.
- Are deposits and withdrawals easy as well as inexpensive?
- Are the funds secure?
- Is the platform easy to use, with fair and transparent fees?
- CFD trading allows investors to use leverage to profit from a small price movement in a wide variety of securities and commodities traded on global financial markets.
- As CFDs are less regulated than other types of investments, the rules around short-selling and day trading are more relaxed. Minimum account balances for day trading can be as low as $1000-5000 depending on your broker. When short-selling with CFDs, a trader doesn’t need to borrow the underlying asset, which makes it similar to short selling.
- CFDs also offer other advantages when compared with more traditional financial instruments. Looser leverage requirements make it possible to make larger profits more with less capital invested.
- CFD trading isn’t for beginners. Trades are normally highly leveraged or debt-fueled, as this makes it easy to lose significant sums very quickly in a volatile market. It’s important to pay close attention to positions and to use services with built-in alerts. Tools like automatic stop-loss protection will provide protection in down markets.
- Although there are normally no fees associated with trades, profiting from small movements can be difficult. Traders pay the bid-ask spread, so the buyer’s position is immediately decreased by the size of the spread.
- Unlike many other commodities, the CFD industry is very loosely regulated. Reputable brokers are normally regulated by top-tier regulatory bodies like the UK’s Financial Conduct Authority (FCA), CySEC in Cyprus, or Australia’s version which is the Australian Securities and Investments Commission (ASIC).
Most brokers also offer demo accounts to give traders a chance to trade CFDs without risk. Using this type of trading account before using actual funds with CFD trading can lead to a higher chance of success.
Getting started is as easy as opening an account at a trusted CFD broker. Check out the top 5 CFD Brokers in 2021, including their best features and customer reviews below!
eToro is considered one of the leading brokers for CFD traders and forex trading globally. The Israeli Fin-Tech company was founded in 2007 and is now headquartered in Cyprus and the UK. It’s regulated by FCA, ASIC, and CySEC. This online broker also offers retail investor accounts that let users trade stocks without commission.
eToro is well known and used by millions of traders. Opening a new account is generally quick and easy, which can be done in as little as one day. It offers around 1,300 indices and stock CFDs, which should be enough selection for the average user. Some cryptocurrency CFDs like those based on Bitcoin are also available for trading.
Except for Israeli accounts, which have a $10,000 minimum deposit, accounts can be opened for as little as $200. Deposited funds are kept in a segregated account at tier-1 banks and eToro is popular among traders who like to participate in social trading. This feature allows a trader to copy the portfolio of another popular or successful investor in real-time.
eToro charges no monthly account fee. After one year of inactivity, there is a $10 per month fee. Deposits are free, but withdrawals cost $25. CFD trading fees are built into the spread and eToro’s spreads were slightly higher than the other brokers listed here.
- eToro’s custom trading platform is secured with a two-step login, and clear fee reports allow for a high level of transparency.
- A Popular social trading feature allows eToro traders to copy the portfolio and moves of other traders or “Popular Investors” on the platform. This is one of the best trading tools and it lessens the learning curve.
- eToro accounts are only available in USD.
- No negative balance protection is available. Some brokers offer a feature that automatically closes a position to prevent the account from going below zero.
- At $25, withdrawing funds from eToro can be costly and it can take up to 3 days to get the remaining balance.
XTB is a respected broker for CFDs and other financial instruments. Founded in 2002, the company has headquarters both in Warsaw and in London. It’s regulated by the FCA and by the Polish Financial Supervision Authority (KNF). Currently, XTB has about 250,000 traders and is considered to be a safe and trustworthy broker. Due to its strong reputation, superb training tools, affordable fees, and customer service, this broker has some of the highest ratings compared to the competition.
Traders have the option to choose between XTB’s own trading platform, xStation 5, and MT4. Their proprietary platform is easy to use for professionals and beginners alike. With slightly fewer Stock CFDs, but more Stock Index, commodity, and Crypto CFDs, XTB offers roughly the same number of CFDs as eToro.
XTB charges no account fee, no inactivity fee, and no withdrawal fee for withdrawals above $100. Deposits made by credit card or bank transfer are also free. Trading fees are built into the spread and 0.6 is the average spread for S&P 500 index CFDs with 2.2 being common for EU 50. For main currency pairs, XTB’s forex CFD fees are lower than IG and eToro.
- Account opening is quick and easy. Investors can fund accounts with a credit card or electronic wallet for only $250, which makes it easy to enter the CFD market.
- XTB allows investors to choose from four base currencies, which are USD, EUR, GBP, and JPY
- Clients also have good access to email, phone, and live chat support.
- Pulling money out of an XTB account is more difficult than depositing and bank transfer is the only option for withdrawal.
- Some clients might consider the one-step login not secure.
- XTB offers limited research data and lacks 24/7 customer support. Some investors also complained of poor email support and have had trouble trying to withdraw funds.
Trading 212 was founded in Bulgaria in 2006 and incorporated in the UK in 2013. Trading 212 is regulated by the FCA and trades are fully licensed. As one of the top trading apps worldwide and the most popular in the UK, Trading 212 stands up to a lot of market scrutiny since more than 14 million traders use it.
Trading 212 offers its own proprietary trading platform, which can be accessed via the web or mobile app. Pro accounts are available and allow professional traders access to leverage up to 1:300. Normal retail traders in the EU can trade with a maximum of 1:30 in most asset classes.
Trading 212 is generally considered a low-cost broker since there are no deposit, withdrawal, or inactivity fees. It also requires a minimum deposit of $100, which makes it a good choice for traders on a budget.
CFD trading fees are built into the spread and are on par, albeit slightly higher than eToro for Index CFDs. When compared with City Index, US Stock CFDs are roughly half the cost and EU stocks about 5x less.
- Trading 212 has a strong and easy to use trading platform. Its mobile app also has good reviews.
- It’s easy to toggle between the demo and real account. The demo account lets investors trade without risk, while the real account has actual funds.
- The FAQ section is very detailed and can help users troubleshoot various problems ranging from margin requirements to foreign exchange questions and everything in between.
- Although Trading 212 offers 9 base currencies, they do charge fees for currency conversion. Funding an account can be slow as it can take up to 2-3 days.
- No social trading capability.
- A focus on mobile trading can leave some experienced traders who prefer using desktop platforms lacking. Trading 212’s proprietary platform offers no compatibility with MT4.
Founded in 1983, City Index has been around for decades. In 2015 the broker was acquired by GAIN Capital, a publicly-traded company. City Index is a trusted broker because of its longevity and is regulated by several global markets regulatory bodies like the FCA, ASIC, and MAS in Singapore.
Getting started is easy and can be completed in as little as one day. Traders can fund accounts with a minimum deposit of £50. This can be done via credit card, bank transfer, or Paypal.
In addition to being Metatrader4 or MT4 compatible, City Index also offers two account types. Their AT Pro desktop platform is complex and better suited for advanced users while their Web Trader has fewer indicators and functionality.
They also have a large selection of CFDs, including 4500 index & stock CFDs + 23 commodities, 57 ETF CFDs, 12 bond CFDs and Cryptocurrency trading.
City Index charges no fee for deposit or withdrawal but charges a monthly inactivity fee of £12.
Stock index CFD fees are built into the spread, which is on average 0.6 for S&P 500 CFDs, 1.5 for EU 50; 0.7 pips for a EUR/USD CFD. Stock CFD fees are based on commission and can be high. The fee ranges from $0.018 per share for US stocks, to 0.08% of the trade value of UK & EU shares. Regardless of the trade, there is a minimum fee of $10.
- City Index offers negative balance protection to automatically close positions before a trader can lose more money than is in his or her account. It’s important to consider this risk management tool before selecting a CFD broker.
- Although not as robust as eToro, City Index does offer some social trading functionalities.
- Withdrawing funds from a City Index account can take a long time (up to 3-5 days). Some users experienced difficulty when withdrawing to a credit card.
- The mobile trading platform has no 2-step login and offers a no-touch/face ID login option.
- Leverage levels are fixed and fees for stock CFDs can be high.
IG is well trusted. because it was established in 1973 and is one of the largest CFD brokers in the world, The IG Group is listed on the London stock exchange and regulated by the FCA along with many other top tier financial authorities globally. Opening an account is easy and fully digital, but can take up to three days.
Traders can use IG’s proprietary platform or MT4. IG’s web trading platform has received positive reviews for its top-notch trading research tools like customizable charts, in-depth research videos, and articles. For example, users can access 25 technical indicators and set alerts to time the market.
IG charges no account fee, deposit, or withdrawal fees. However, there is a monthly fee of $12 for inactive accounts.
The CFD fees are built into the spread. The average spread for S&P 500 CFDs is 0.6, 1.5 for EU 50, and 0.7 pips for EUR/USD Forex CFDs. Individual stock CFD fees are relatively high since the fee was nearly double XTB and 5x eToro’s fees.
- Of the brokers listed here, IG offers the largest selection of CFDs (68 Stock indices, 10,500 stock CFDs, 1,900 ETF CFDs, 47 Commodity CFDs, 18 bonds, 8 cryptos).
- The account opening process is fully digital and the IG web trading platform offers 2-step authentication.
- No minimum deposit on bank transfers and there is no deposit or withdrawal fee. There is, however, a $300 minimum to deposit via PayPal.
- Stock CFDs have high fees and it comes with an automatic high leverage feature. This amount can’t be automatically adjusted, with users needing to manually change it with each trade.
- The proprietary trading platform is available only in English and clients have complained of poor phone customer support.
- The mobile trading platform has no 2-step login or no touch/face ID.
Modern Fintech has enabled trading from anywhere with an internet connection. These best brokers and their platforms offer a wide selection of CFDs and extensive resources to help anyone master CFD trading.
However, it’s important to choose a trusted broker with a fee schedule and tools that can be customizable. Always keep in mind that because CFDs have high leverage, it’s important to be aware of the risks before trading them.