Subscribe to our newsletter, for regular news & market updates.
CFD trading can offer an investor the opportunity to trade, without having to purchase or sell any actual assets. CFD stands for Contract for Difference and it is a way of potentially benefiting from the rises and falls of prices of assets. Those assets can be almost anything, though they are commonly in fast-moving markets where CFD traders try to make use of short term volatility.
CFD trading is not allowed in many countries. In the US, for example, it is completely banned. In other countries, like many European nations, CFD trading can occur, though it has many rules and regulations surrounding it. It is, however, allowed in the UK so if you are a UK investor looking to add a form of derivative to your portfolio, CFDs could be a possibility for you.
There are several features of trading CFDs. Firstly, as you do not have to own the actual underlying asset, you gain access to markets that would otherwise be off limits. Those limits could be because of currency, price or any other restrictive factor that makes it impossible for you to buy a certain stock, commodity or Forex pairing position.
And, not only do you gain access to those markets, you also invest in a cheaper way than buying the actual financial instrument you are trading.
Other advantages are that they are simple to execute. While the ideas behind them can be complex - they are quick and often at a price where there will always be a market for them. CFDs are quick because they are so often extremely short-dated.
Finally, CFDs allow for short selling. That could be a positive or a negative - however you look at short selling. For those that think it enhances the markets as a whole, it is a good thing as it means investors can sell an asset they do not own.
Of course, every market or investment class has its drawbacks. With CFDs, perhaps the biggest one is just how immense the losses can be unless you truly know what and how to trade them. It is not uncommon for CFD traders to have losses so big that they quickly go into the red in their broking account.
Finally, the CFD market as a whole is not strongly regulated in comparison to other markets. While CFD trading is banned in many countries (a disadvantage in itself), for those investors based in countries it is permissible, the lack of regulation may be a large deterrent.
Given the complexity of trading CFDs, it is even more important to ensure that you use the best CFD trading platform the UK has on offer. Below are our three preferred platforms for trading this type of derivative.
Capital.com is a very popular trading platform. Its regulation by the European and Security Markets Authority will give potential investors a confidence boost if they are uncomfortable with the lack of regulation that does surround the CFD market. Plus, Capital.com provides the ability to take positions based on many different asset classes from many different markets around the world. That’s crucial for investors who are using CFDs as a means to access markets that are otherwise not a possibility for them.
For those that want to be on the front edge of investment technology, eToro is a good option as it is a social trading platform that allows CFD trades to be made. The social trading side of things means that eToro customers can follow other traders and see what trades that investor is making. If they like the strategy that a particular trader is using, and they like the returns those trades are enjoying, a customer of eToro can ask the platform to copy all the future trades that another trader on the platform is making.
UK investors looking to get into CFD trading may want to consider Plus500. It has a huge amount of features that can materially improve an investor’s ability to research and analyse markets before taking any positions. The highly intelligent technical analysis features are of particular note in Plus500. Plus, it has such a large amount of instruments on offer. Plus500 customers have access to CFD positions in Forex pairs, ETFs, commodities and indices.
Recommended Read: Is Crypto Dead?
When appraising CFD brokers, one of the deciding factors that make us choose one platform or broker over another is how CFD brokers make money. To many, how CFD brokers make money will reveal the value for money the service is that they provide. And that is the key to calculating whether CFD brokers are worthwhile using in comparison to how much their services really charge.
Figuring out their service cost is crucial as a result and it can be done by looking at their fees, how they structure their fees, and the width of the spread they offer on CFD positions. The smaller the fee, and the smaller the spread, the cheaper a broker is. However, that does not necessarily make a CFD broker worth using. Just because they are cheap, does not mean you will realise a value for money service.
The best CFD trading platform in the UK will be the one that helps you place the best timed trades so that you can make optimal returns with your investment strategy. CFD trading is a face paced, complex investment market so it is even more crucial to use a trading platform or broker that you use to support you in running your portfolio. By truly knowing the answer to how do CFD brokers make money, you will be able to identify the broker or platform for you that offers you the best value service for your needs.
Above all, ensure that if and when you enter the CFD trading world, that you do so knowing that you could stand to lose a lot of money. CFD trading can amplify your losses to an amount you can no longer afford. Of course, the flip side of this is magnifying returns. However, you should only ever trade when taking into account your risk profile and your investment requirements.
For all the latest investment news and advice, sign up today - we are spam free.
Risk Disclosure: Trading in financial instruments involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Before deciding to trade in financial instruments you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed. Best10Stockbrokers would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Best10Stockbrokers and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Best10Stockbrokers and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website. Best10Stockbrokers may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.