There is plenty of money to be made in the financial markets. Unfortunately, many people believe that in order to make significant money, this will require that you already have a large amount of capital. This way of thinking limited the potential of the financial markets to large Wall Street financial firms and wealthy investors. This had largely been the case at the beginning of financial trading markets. However, things have changed dramatically with the advent of CFDs which has empowered the everyday individual retail investor.
Most investors prefer to trade CFDs, or contracts for differences, because you never actually have to own the asset underlying the contract, thus making trading more affordable and in most cases, more profitable. CFDs are basically contracts between investors and their financial securities broker. The terms of the agreement are that the broker will exchange the difference in the market price of a CFD’s underlying asset between the time of the opening and the closing of the contract and in order to do that you need to use a CFD trading platform.
We have gathered here the best CFD trading platforms for you to choose from:
Pepperstone
Established in 2010, Pepperstone is a solid CFD broker founded by a group of experienced investment professionals who are all committed to empowering investors to achieve success in the financial markets. The firm makes possible $9.2 billion worth of investment activity, on average, on a daily basis. More than 57,000 traders use the broker’s online platform worldwide. Along with CFDs, Pepperstone also offers Forex, commodities, cryptocurrencies and indices to trade.
Key Features
- Deep liquidity – Multiple sources of liquidity provide generous spreads
- Wide array of assets – Forex, indices, stocks, cryptocurrencies and commodities
- MetaTrader – Access to MT4 and MT5
- Social trading – Copy trades of successful traders
- Secure investment platform – Advance security technology protects from fraudulent activities
- Demo account – Trade with virtual funds to practice
Pros and Cons
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Account minimum deposit: AUD$200
Maximum leverage: 1:500
Regulated
Pepperstone is regulated under the laws of Australia and the regulatory bodies of that nation. Also, the firm conforms to all applicable international laws which are relevant to the business activities of the financial services firm. Additionally, Pepperstone adheres to the rules and regulations of any authoritative international regulatory bodies which apply to the firm’s services provided to clients.
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eToro
Established in 2007, eToro has grown to be one of the most popular brokers in the industry. Millions of traders now use the platform in more than 140 countries around the globe. The platform provides access to cryptocurrencies, stocks, commodities and Forex. The broker is well-known for its copy trade feature which allows you to copy the trades of other successful traders. Also, eToro offers quality educational resources to improve market knowledge.
Key Features
- Intuitive software – Interface is designed to be as user-friendly as possible
- Wide-array of assets – Stocks, cryptocurrencies, commodities and Forex
- Social trading – Copy successful traders or provide signals to others
- Trader education – Take advantage of numerous educational resources
- Responsive customer service – Representatives are well-trained and knowledgeable
- Strong security measures – Strict safety protocols and advanced security technology
Pros and Cons
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Account minimum deposit: Varies from $50 to $10,000 depending on your location
Maximum leverage: 30:1
Regulated
eToro (Europe) is regulated by the Cyprus Securities Exchange Commission (CySEC) while eToro (UK) is regulated by the Financial Conduct Authority (FCA). The firm adheres to the applicable laws of the U.K.
The Australian Securities and Investment Commission (ASIC) regulates eToro AUS. The broker adheres to all relevant laws of Australia. Also, eToro conforms to all applicable international rules and regulations.
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Investous
Traders are able to gain access to more than 270 tradable instruments with Investous. The platform provides four different asset classes. Traders can choose to trade Forex, indices, stocks or commodities. Investous also provides excellent educational resources to help enhance your investing results. This includes video tutorials, eBooks and advanced market analysis. Both mobile and web-based platform options are available for investors with Investous. Also, the broker’s platform is compatible with MT4.
Key Features
- User-friendly software – The software interface has been intuitively designed
- Vast menu of assets – Forex, stocks, commodities, indices and commodities
- Educational resources – Video tutorials, advanced market analysis, eBooks and more
- MetaTrader – Compatible with MT4
- Customer service – Top-notch support from responsive representatives
- Safe online platform – Advanced security technology and strong safety protocols
- Demo account – Try the platform with virtual funds without risk
Pros and Cons
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Account minimum: May vary – Basic Account is €250
Maximum Leverage: 1:30 Retail Client/ 1:400 Professional Client
Regulated
Investous is regulated by the Cyprus Securities and Exchange Commission (CySEC) and the IFSC of Belize. The broker adheres to all rules and regulations of Belize which apply to the firm’s business activities. The firm also adheres to any international laws which may be applicable.
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Mason Ford
Headquartered in the U.K., Mason Ford is a reputable financial investment broker offering a wide array of tradable assets. Traders have access to more than 300 tradable instruments which include Forex, cryptocurrencies, commodities, indices and stocks. The broker offers more than a hundred stocks of major companies to trade. Also, Mason Ford is known for its powerful online interface which provides lightning-fast trade execution. Additionally, Mason Ford provides impeccable customer service.
Key Features
- Many instruments – Access to more than 300 tradable markets
- Quality software – Intuitively designed user-friendly online interface
- Educational resources – Tutorials, news announcements, seminars and more
- Superb customer service – Highly knowledgeable and well-trained representatives
- Safe online platform – Advanced security technology and safety protocols
Pros and Cons
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Account minimum: $5,000
Maximum leverage: 1:1000
Regulated
Mason Ford is regulated by the Australian Securities and Investment Commission (ASIC) and the UK Financial Conduct Authority (FCA). The broker also adheres to all applicable laws in the UK. Additionally, the firm adheres to all international law which may be relevant to the financial firm’s business activities.
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Profit Trade
As a leading financial securities broker, Profit Trade provides investors with the ability to trade Forex, cryptocurrencies, stocks, indices and commodities. The broker’s comprehensive online environment empowers beginner and expert traders with features that improve investment results. You will have everything you need to achieve success in the financial markets with Profit Trade. Also, the broker provides users with educational resources which are designed to provide information and insight about the financial markets.
Key Features
- Numerous tradable assets – Forex, commodities, stocks, cryptocurrencies and indices
- Powerful online platform – Fast trade executions with intuitive software interface
- Trader education – Webinars, eBooks, investing glossary and more.
- Generous bonuses – Traders receive bonuses of up to 200%
- Customer service – One of the industry’s best support teams
- Security technology – Latest in safety protocols and security technology advancements
- Demo account – Practice with virtual funds without real risk
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Pros and Cons
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Account minimum: $250
Maximum leverage: 1:400
Regulated
Profit Trade is regulated under the rules and laws of Bulgaria. The broker adheres to the laws and regulations of the country of Bulgaria. Also, the firm adheres to all international laws and regulatory bodies which may apply to the business activities of Profit Trade.
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TeleTrade
Established in 1994, TeleTrade provides investors with a powerful online software to trade the financial markets. TeleTrade is now one of the most respected brokers in the industry today. More than a million traders have used the TeleTrade platform worldwide to trade the financial markets. TeleTrade provides a large menu of tradable assets. Users can trade Forex, metals, energies, indices and stocks. Also, MT4, MT5 and MetaTrader CENT are able to be integrated with the TeleTrade platform.
Key Features
- Quality online platform – Software interface designed to be user-friendly
- Copy trading – Follow and copy trade activity of success investors
- Numerous assets available – Forex, metals, indices, stocks, energies and cryptocurrencies
- Demo account – Practicing online with without risking real funds
- Customer support – Superb service from knowledgeable representatives
- MetaTrader compatibility – MT4 and MT5 integration available
- Secure online platform – Best in security technology has been implemented
Pros and Cons
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Account minimum: $300
Maximum leverage: 1:100
Regulated
TeleTrade is regulated by the laws of Saint Vincent and Grenadines. Also, TeleTrade adheres to all financial regulatory bodies of Saint Vincent and Grenadines which may have authority over the firm’s business practice. Additionally, TeleTrade adheres to all financial international laws, which may be applicable.
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AvaTrade
Since 2006, when it was founded, AvaTrade has empowered investors with access to the financial markets through a comprehensive investment platform. The broker offers more than 250 tradable assets, including stocks, Forex, cryptocurrencies, commodities and indices. The firm has approximately 200,000 registered users worldwide and facilitates over 2 million traders on a monthly basis. AvaTrade is also compatible with MT4, MT5 and mobile platforms. Advanced security technology provides a secure online environment.
Key Features
- Powerful software – Fast trade executions with comprehensive online tools
- Numerous tradable instruments – Forex, bonds, stocks, indices, cryptocurrencies and commodities
- Educational resources – Tutorial videos, eBooks, articles and daily market analysis
- MetaTrader compatibility – MT4 and MT5 integration available
- Customer service – Responsive team ready to find solutions for traders
- Safe online environment – Advanced security technology and safety measures implemented
- Demo account – Practice with the platform using virtual funds
Pros and Cons
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Account minimum: $100
Maximum leverage: 1:400
Regulated
AVA Trade EU Ltd. is regulated by the Central Bank of Ireland and adheres to the laws of the jurisdiction of Ireland. AVA Trade Ltd is regulated by the B.V.I. Financial Services Commission and conforms to the rules of the Virgin Islands. Ava Capital Markets Australia Pty Ltd is regulated by the ASIC and adheres to the laws of the country of Australia.
Ava Trade Capital Markets Pty is regulated by the South African Financial Sector Conduct Authority (FSCA) and conforms to the financial laws of the country of South Africa. Ava Trade Japan K.K. is regulated by the Financial Services Agency in Japan and adheres to the rules and regulations of the Japanese government. Ava Trade Middle East Ltd is regulated by the Abu Dhabi Global Markets (ADGM) and Financial Regulatory Services Authority (FRSA) while also conforming to the laws of the jurisdiction of Abu Dhabi.
Additionally, the firm adheres to any international laws which may be applicable.
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24Option
Traders have access to a comprehensive platform with 24option. Novice traders, as well as expert traders, will find the 24option investment platform powerful and intuitively designed. The online platform offers a variety of asset classes, including Forex, cryptocurrencies, stocks, indices and commodities. The broker also offers users access to a variety of educational resources, including eBooks, webinars and market analysis reports. 24option’s platform is compatible with MT4. Also, the broker offers quality customer service.
Key Features
- All-inclusive platform – Comprehensive charting tools with fast trade executions
- Educational resources – Webinars, eBooks and market analysis reports
- Customer service – Support representatives are well-trained and knowledgeable
- MetaTrader compatibility – Online platform is compatible with MT4
- Secure online platform – Security technology fully protects from fraudulent activities
- Demo account – Trade virtual funds to learn about the platform
Pros and Cons
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Account minimum: €250
Maximum leverage: 1:30 Retail Client/ 1:400 Pro Client
Regulated
24option is regulated by the International Financial Services Commissions of Belize. The firm also adheres to applicable laws of Belize. Additionally, 24option conforms to all applicable international laws and regulatory bodies.
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Stratton Markets
Stratton Markets is one of the financial industry’s most reputable brokers. Traders will have access to a variety of tradable assets, including Forex, cryptocurrencies, stocks, commodities and indices. The broker provides excellent customer service with representatives always eager to find solutions to any issues which may arise. The platform is easy to use and intuitively designed while providing lightning-fast trade executions.
Read Stratton Markets Review Here
Key Features
- Quality online platform – Intuitive software interface and fast trade executions
- Wide-array of assets – Forex, commodities, cryptocurrency, stocks and indices
- Excellent customer support – The support team is well-trained and courteous
- MetaTrader compatible – Traders can integrate MT4 with the platform
- Strong security measures – Advanced security technology with strict protocols
Pros and Cons
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Account minimum: $250
Maximum Leverage: 1:400
Regulated
Stratton Markets is regulated by the Cyprus Securities and Exchange Commission. The firm adheres to all relevant financial laws of Cyprus. The broker also adheres to any international rules and regulations which may be applicable.
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EuropeFX
One of the best brokers available, EuropeFX provides investors with a powerful and all-inclusive online platform. The broker has a variety of tradable assets available, including Forex, indices, commodities, stocks and cryptocurrencies. The software interface has been designed to be as intuitive and easy to use as possible, enabling even new traders to step into the trading arena with confidence. The broker provides quality trader educational resources which include eBooks, a video academy and webinars.
Key Features
- Powerful online platform – Comprehensive software interface with effective charting tools
- Large menu of assets – Forex, stocks, indices, cryptocurrencies and stocks
- MetaTrader compatibility – MT4 integration available
- Superior support – Customer service representatives are responsive and professional
- Advanced security measures – Strong safety protocols and security technology
- Demo account – Practice with virtual funds without any risk
Pros and Cons
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Account minimum: $200
Maximum leverage: 1:200
Regulation
EuropeFX is regulated by the Cyprus Securities and Exchange Commission (CySEC). Additionally, the firm adheres to all applicable laws of the country of Cyprus which are relevant to the business activities of EuropeFX. The broker also adheres to any international laws, while complying with the relevant financial regulatory bodies.
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What are CFDs?
Contracts for differences (CFDs) are exactly what they sound like. They are contracts or agreements made in the financial derivatives trading industry. The agreement of a CFD is essentially between the trader and a broker in which the difference in the prices of opening and closing a position is settled in cash. This means there is no actual delivery of physical commodities, goods or securities when investing in CFDs.
Many traders prefer CFDs because there are fewer margin requirements in order to control large positions in the markets. Stock CFDs may have a margin requirement of around 10% while other asset classes may have margin requirements of as low as 3%. The margin requirements will depend on your particular broker and which asset class you are trading.
CFDs were originally created in order to hedge against losses in the stock market exchanges in the early 1990s. At first, only financial firms had access to CFD investment platforms. However, with the advent of technology, there are now numerous online investing platforms which offer CFD investing. This has empowered the average, everyday retail investor with the opportunity to control larger market positions which they would not otherwise be able to control. In a way, CFDs have evened the playing field for retail traders and individuals.
Despite the many benefits of CFD trading, not every CFD broker is the same. There are pros and cons to each broker. It is a good idea to make sure the broker you choose to register with is able to provide you with the features and trading services you prefer. This will depend on your individual financial and investment goals as well as your own tolerance for taking risk of monetary loss. It is important to remember that you should never risk more than you can afford to lose.
Some brokers may offer more generous spreads while others may have lower fees for deposits and withdrawals. Others may not have any fees for withdrawals but may charge a commission. Brokers many times will offer valuable educational resources, but not all of them do so. Therefore, it is important that you thoroughly research the advantages and disadvantages of any broker you are considering registering with in order to start trading CFDs for profit.
How Does CFD Trading Work?
It is important to have a basic understanding of how CFDs function before you actually start investing. It is a good idea to use an example to illustrate exactly how CFDs would work in a real-life situation. The following will illustrate how the opening and closing of contracts are executed.
Assume that a stock has an ask price of $20.50 and you buy 100 shares of that particular stock. The cost to make the transaction is $2,050.00 plus fees and commissions. The CFD broker may require only a 5% margin which means you only need $102.50 deposited into your account in order to complete the transaction. The trade on the broker’s terminal will display a loss that is equal to the spread at the moment of the trade execution. For example, if the spread is 4 cents, the stock will need to appreciate 4 cents for your position to reach break-even. This means the bid price would have to be at least $20.54 to avoid a loss.
Each broker is different and the variables which affect your profit potential may vary. The amount of margin required may be lower or higher, however, CFD brokers require far less capital than traditional brokers. The amount of margin is generally between 3% and 50%. The lower the margin required, the less money you will have to have in your account to control larger market positions. On the other hand, you should be careful since lower margin requirements could result in more risk for large losses.
What is a CFD Trading Platform?
A CFD investment platform facilitates the online execution of contracts for difference. Today, CFD platforms are available to the general public and everyday investors. However, this was not always the case. When CFDs were first created, they were not available to everybody.
CFDs were likely first created in the early 1990s and are believed to have originated from a London financial firm. The company had created CFDs in order to hedge against losses on the London Stock Exchange. Investors favored CFDs due to the smaller margin required and also, there was no exchange of actual physical shares. Also, CFDs allowed investors to avoid some taxes.
The ascent of online investment during the late 1990s was accompanied by the introduction of CFDs by brokers to retail traders. All of a sudden, retail investors were able to purchase stocks, indices and commodities to which they previously had no access. They were able to do this with just a simple click of a mouse on a computer connected to the Internet. Following this advent, the popularity of CFDs grew exponentially within the investment community.
Australia became the first country to offer CFDs on an exchange in 2007. This was advantageous for traders as it resulted in better regulation, transparency, fairness and counterparty risk. On the other hand, trading CFDs via regulated exchanges is associated with more costs, while the number of CFDs available is limited.
Today, the popularity of CFDs continues to remain strong in the countries where they are allowed. The range of asset classes offered via CFDs is also more diverse nowadays. Retail traders now have convenient access to CFDs for Forex, stocks, treasuries, commodities and indices. To top it off, there are even brokers offering cryptocurrency CFDs. Every day, traders now have a vast array of CFD brokers to choose from enabling anyone to diversify their trading portfolios with ease.
Trading Strategies
With CFD investing, you have the option of either going long or short. It is important to understand how both of these strategies work and when to use them. Also, you will need to comprehend the assumptions of each strategy as far as future market price movements. Below are the details of going long in the market and going short when making trades.
CFD Long Position
Going long with CFDs is basically buying a market position using CFDs. The objective is to capitalize on the future appreciation in the value of the underlying asset. You will go long in an asset market if you believe the price will increase. The price at which you first buy an asset is known as the entry price. The price which you sell at is the exit price. You would calculate your profit by subtracting the entry price from the exit price.
Here is an example of going long on a security. Suppose you purchased 100 shares of a stock priced at $2.00 with a margin requirement of 10%. This means you needed to have $20 in your brokerage account to hold a market position worth $200. If the stock price rises to $3.00 in the next two days, you will then be holding a position worth $300.
Of course, in real life, you will also have to factor in any fees, commissions or spreads charged by the broker. This will affect the overall profit of the trade. How much is charged will vary between each broker and which asset class you are trading.
CFD Short Position
Opening a short position in CFD investing is essentially the opposite of going long. This is known as short selling, which is essentially speculating on the future decline in the price of the security. Just like with going long, with shorting in CFD investment, you will only need enough funds to cover the margin requirement of the broker for the particular asset.
When you are short selling, the profit earned is equal to the exit price subtracted from the entry price. For instance, if you decide to short 100 shares of a stock at an entry price of $10 with a required margin of 10%, you will need to have $100 of capital deposited into your brokerage account in order to hold a position worth $1,000. If within the next two days, the price of the stock drops to $5, you will be holding a position worth $1,500.
Also, just like with going long, when you are short selling, you will have to factor in the costs of making trades. The broker may charge fees, commissions and a spread. This can cut into your total profits.
CFD Trading Pros and Cons
There are various pros and cons to CFD investing. You will need to be cognizant of the benefits of CFDs as well as the pitfalls associated with them before deciding on investing with CFDs. The more you know, the better you will be able to understand the risks involved. This will enable you to take actions to mitigate these risks while also maximizing your profits earned. The following details the various advantages and disadvantages to investing with CFDs.
Pros
There are many benefits to investing in CFDs as opposed to using traditional brokers. One of these advantages is that with CFDs, you are not required to have as much capital deposited. For instance, with a traditional broker, if an asset is worth $100 and you have $200, you will only be able to buy two shares. On the other hand, with CFDs, assuming a 10% margin requirement, with $200, you will be able to buy 20 shares.
Another advantage of trading with CFDs is potential tax benefits. Depending on the country you reside in, with CFD transactions you are able to avoid certain taxes which are levied on trades with traditional brokers. Also, you are entitled to collect dividends from shares despite not actually owning the shares outright. Essentially, with a fraction of the usual capital required with a traditional broker, you will be able to gain the benefits of holding shares and collecting dividends.
Using CFDs to trade cryptocurrencies has various technical advantages over going straight to the cryptocurrency exchanges. Usually, you would have to create a wallet in order to store cryptocurrencies. You would also have to deal with the wallet in order to make transfers as well in order to participate in the cryptocurrency markets. However, with CFDs, you can avoid all of these technical requirements to trade cryptocurrencies. Also, it is a lot cheaper trading crypto CFDs than it is trading the actual cryptos.
Cons
Despite all of the powerful advantages of CFD investing, there are a few disadvantages you should consider. One disadvantage is that there is increased risk with CFDs since you are able to access larger market positions. Although CFDs provide more potential for profit with smaller amounts of required capital, it also comes with more potential for large losses if the market moves against you.
Due to the increased market power of CFDs, many traders start to become too greedy due to the larger potential profit. Therefore, it is essential to maintain a well-crafted investment strategy with the proper risk management to fit your own individual risk profile. Using stop losses and being cognizant of the size of your positions is important. Also, just like with any type of trading, CFD traders need to be more careful during times of volatility in the markets.