Compare CFD Brokers And CFD Providers

CFD brokers or providers are mostly online, using electronic platforms which makes CFD trading more mobile. With online trading, there’s no requirement of need to call and talk to a CFD broker, unless of course you have a query, use a full service broker or need help with a particular order.

A CFD provider or CFD broker is not just about the CFD brokerage or commission.

With whichever provider you choose, you can consider the following points, to see that they are established and that you're happy with what they have to offer. Another way is to try out a demo account with them to test their platform.

CFD Brokers Online: Features To Be Aware Of:

» Their margin requirement

Many CFD providers’ margin requirements are around 10% (usually from 5-20%), thus offering around 10 to 1 leverage. However, some share CFDs require a margin of 20-70% depending on the turnover of a specific CFD.

» Their commission or brokerage

The commission for CFDs is usually 0.1 to 0.2% of your trade size each way, with a minimum commission of around $10-25, depending on the provider. Note that for some providers, the commission or CFD brokerage may be negotiable, especially if you a frequent trader. So you can ask if this applies to you.

Here's a tutorial on calculating CFD commissions and costs of trading.

» Number of CFDs available to trade and the number of CFDs that are shortable

Generally speaking, a large number of CFDs will be more important if you’re trading systems that are designed to be traded on for example, the top 200 or 300 CFDs, than if they are designed to trade say the top 30 or 100 only.

If your system is designed for a certain number of CFDs to produce your profits, then check the number of CFDs available to trade is adequate, otherwise you may have to go and redesign your system. Some people even backtest with the current list of CFDs that are offered by the provider that you are intending to trade with, to help avoid incompatabilities here.

» What are the CFD order types that are available to be placed?

With many CFD providers, you can place orders at after the market is closed, so that if you’re working in the day, you can place your orders at night, and won't have to watch the prices during the actual trading day if you don't need to. In other words you’re trading a system that is traded on an end of day basis.

Some providers on the other hand will need you to place the trades when the market is open. It all depends on your trading system or strategy.

As well as this, consider if these apply to you:

Do you need to place a limit order or market order in the evenings to enter a CFD position the next morning?

Do you need to place an “if done” stop loss order, attached to your pending order to enter the CFD?

Do you need to place the “if done” stop loss order at a specified price, or at a distance from the entry price?

Are there rules on how far the stop loss order can be placed from the entry price?

If you place guaranteed stops (where if the price gaps through your price, you’ll be guaranteed to exit at your intended price), check the cost of this and whether the guaranteed stops be moved and if so, is there a cost of moving it?

» The interest charged for long overnight held positions, and paid for short positions

Different providers will have different base rates, and it is usually a major bank’s overnight interest rate. See this for how to calculate interest on CFD positions held overnight in the long direction.

The rate charged for long positions will usually be 2-3% above that base rate, and the interest paid for short positions will be 2-3% below.

So there may be some differences here.

» Do their CFD prices exactly mirror the underlying stock price, or is the spread widened

Some providers offer DMA (Direct Market Access) CFDs which means you get the market price, whereas others do not offer DMA CFDs, and so the spread may be widened by a small amount, say 0.05%.

You will have to take this in context of the other costs of trading, as the same provider may have also smaller commissions, whereas another provider who does not widen the spread may have higher commissions. So in summary the costs are commissions + interest + spread widening (if any).

» Any other fees

Depending on the country’s CFDs that you’re trading, there may be a monthly fee to access live dynamic prices, though your provider may waive this fee if you trade a certian number of times a month which may be easily met if you are actively trading.

For example, there could be an ASX data fee, and webIress platform fee, or in some cases, both.

» Is the company reputable and stable?

Is the provider that is stable and well established?

Depending on the location of the broker, they may be regulated by a financial body and thus may provide rules and regulations.

Do some research in this area.

Because different providers may have different pros and cons, many traders in fact trade with more than one provider.

For example, there may be a provider that has relatively low commissions, have 200 CFDs available, however only a small number of CFD that you can short. So the trader may also use another provider that has a higher commission, but has over 200 shortable CFDs. The reason behind this is that their trading system is much more profitable when able to short the full list of CFDs, even despite the higher commission costs.

» Customer support

You can look for customer support in terms of the availability and helpfulness of the dealers are on the phone.

Many traders will not need to deal with a dealing desk, as all trades are placed online, but if for some reason you need to or want to, then it's a good idea to check that they have this kind of service, at the hours you need. Sometimes if there is a power outage and you have no ocomputer access, you may need phone support to change orders or to move stop losses etc.

This is to make sure that they can provide the kind of service you want.

CFD dealers: Other differences between them?

» How entries and exits are filled

The precise details of how CFDs are actually filled when a position is entered depends on the market maker themselves. For example, some market makers rely on there being adequate liquidity on the underlying stock for your trade to go through at that price point. Whereas another market maker may add the volume that CFD traders are creating to the underlying market volume, to enhance market liquidity.

Similarly with exits, some providers will exit CFDs at a market weighted price if there is inadequate volume traded at each price point, whereas another provider will exit you at a price point regardless of how many underlying shares are traded at that price.

» Slippage

Slippage is the difference in price between your intended entry or exit and your actual entry or exit price. This affects the performance of trading systems in real time.

The amount of slippage you may encounter can depend on the liquidity of the stocks you are trading. If the market you’re trading is not extremely liquid, this will have more impact than if you’re trading a large market that has little liquidity issues. This may not be unique to a specific CFD provider, as they may state that their entry and exit rules depend on the underlying market liquidity.

Other providers may have different rules regarding liquidity eg CFD orders may add to the underlying "liquidity" and thus may improve liquidity in these situations. Just check to see their policies if you are trading in smaller markets and your trade sizes are relatively large or if your trading style depends on little slippage to make profits.

Sometimes, not everything you want to know is on their website, though most of the details are usually.

If not, you can ask your provider for help or to answer questions and get confirmation of their information.

See more on CFD trading costs here.

Note:

All trading involves a high risk of financial loss, and the information on this site is for general information purposes only and is not financial advice in any form. Seek your own financial advice before taking any action.

All forms of trading involves risk of financial loss.

Also note that CFD trading is not legally permitted in some countries.

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