CFDs are becoming a popular alternative for traders looking for short-term leveraged trading of stocks and other assets. In this expert guide we will teach you what a CFD is and how CFD trading works. We also list and compare all the regulated CFD brokers on the market, with detailed reviews for readers who want all the facts before signing up. Make sure you compare all the brokers to find one that truly suits your needs.
A well-known Malaysian CFD broker
What are CFDs?
A Contract for Difference (CFD) is a negotiable product that mirrors the underlying asset. When trading CFDs, you sign (or sell) contracts based on your margin and collect (or pay) the difference when closing your position. Unlike buying stocks or futures contracts, CFDs are derivative instruments and do not own the underlying asset in the trading process. CFDs can be created to mirror almost any financial product or market, including individual stocks, indices, currency pairs, interest products or bonds. If it moves and needs, you can check if there is a CFD.
CFDs are generally not recommended for new traders. If you read the paragraph above and need to provide Google with some of the terms used, you cannot trade CFDs. Understanding or using, profitability, counterparty risk and complexities of derivative products is encouraged. In general, CFDs are volatile and liable to additional losses, so you should only trade what you want to lose. You should set up a demo account and experiment with it, but research and learn about the product and its content before depositing real money into the account.
How to trade CFDs?
CFD trading mechanisms work in the same way as buying and selling stocks, futures or foreign exchange. With CFDs, you don’t have any underlying financial instruments. A trade is the price difference between when you start trading and when you finish trading. So the name is Contract for the difference. Most CFD providers need to enter or exit positions at a spread range. Consider a commercial example for clarity.
Believing that the price will rise in the short term, we want to buy 100 “shares” of XYZ.
The current price is $10.55, the bid is $10.50, and the bid is $10.60.
- Click buy through the spread and pay $10.60 for Week 100.
- If you buy the stock itself, you use $53 margin for the position instead of $1050 + commission (assuming a 5% margin).
- The stock went to a target of $11, which was decided to sell quickly.
- Clicking on SELL on the spread will fill $10.95 for 100 shares on the internet.
Congratulations! You have made a profit of $35 (35c per 100 shares x 100) in your position.
As you can see, leverage is strong. With a profit of $ 53 (66%), the profit of $ 35 is higher than the 4-5% increase you get when buying the platform, although the amount is small.
This is the appeal of leverage and CFDs. Of course the opposite is also possible. The same action can wipe out all the capital (and more) in the CFD account.
Why should I trade CFDs?
CFDs are leveraged products, offering significant advantages and disadvantages compared to conventional stocks or futures.
Advantage:
- Conclusion: For profit, CFDs are often used by traders who prefer short-term trading or intraday trading. Depending on your margin requirements and margin structure, overnight stays can be expensive.
- Leverage: The amount of leverage available varies by broker, depending on the product and the market. The biggest advantage is the potential ROI that traders can get by using CFDs when compared to regular stocks. As you can see from the example above, it is easy to earn more than 50% ROI for the margin used and it is very attractive for speculators who are accustomed to risk.
- Profitability: CFD brokers only require 2% to 20% margin on their current location, depending on equipment and volatility. Like forex, this provides access to expensive non-tradable stocks or trades on a larger scale than non-traded ones. For example, to buy 100 shares for $ 145 in Apple, you need $ 14500 and charges in your stock account. With a CFD broker, you can trade 100 shares with a margin of $725 and 10 shares for $72.50. This opens up new markets and opportunities.
- Global market exposure: Most CFD vendors offer multiple markets. You can trade Malaysia’s DAX as easily as Australian stocks. This can be done with an account without expensive data or operating costs.
- Fees: Especially for retail brokers, transaction fees can add up quickly. There are no fees for CFDs, just the spread (show your own challenge).
- Hedging: CFDs provide people with stock portfolios the opportunity to quickly and cheaply hedge old stock positions. Options can be difficult and difficult to stack, especially when used to hedge positions. CFDs provide traders with an understanding of affordable alternatives and various hedging opportunities.
Cons:
- Uses: This is a double-edged sword. With CFDs, it is cheaper to buy 100 shares in Apple, but thereby putting you at a great risk. If you move the platform a little, the value of your ideal position will disappear and you can keep red with your broker.
- Cross Diagonal: You need to spread the spread to start or end a CFD position. No limit orders. This means you always pay to enter or exit. The price to pay to access margin. Although this may not be significant, the spread can add up to a large amount of money, especially if the trader is active. It is also very difficult to implement some strategies (eg replication).
- Betting for brokers: CFDs are contracts with brokers. They profit if you lose. This creates many conflicts of interest. It is very important to research the broker, make sure it is regulated (not much) and read reviews online. Please contact us directly if you have any questions before depositing funds into your account.
Partner risk
When trading CFDs, it is necessary to contract with a broker for future movements of financial products. Unlike the underlying agreement, the other party to the agreement is the broker. As you know, this creates a number of conflicting interests and managers continue to try to balance their customers from predatory activities and allow traders to be free to sell them what they want.
Skeptics may argue that trading CFDs with a broker is like gambling in a casino. Keeping customers happy and smiling is the casino’s biggest concern.
Believers think that having a lifetime from their clients is a concern of CFD brokers and that they make enough money from spreads and amounts that clients have no incentive to make mistakes. Shady practices have been reported to regulatory agencies, which will ultimately hurt business and profits.
It should be noted that traders must conduct research on their CFD brokers and regulations. A good place to start is with a list of recommended brokers.
Broker comparison method
- Amplitude / commission
- Request usage and deposit
- Trading floor
- Deposit and withdrawal options
- Additional features
- Rules
- Mobile application
Each section is described in detail below.
Spread or commission
The spread or commission affects all traders and all transactions. Express ‘cost’ when doing transactions. Therefore, it is important to compare one broker with another. But a direct comparison may not be easy. The amplitude varies from property to property and can change daily if the property is temporary. Therefore, the broker may have the smallest spread for the forex pair, but may have the maximum spread for the indicator and the figures may change the next day.
Depending on the property, the broker is the cheapest or the most expensive. Therefore, when comparing spreads with brokers, check the spread of the assets you will be trading the most .
Usage and deposit
Margin refers to the amount of money a trader must deposit (and commit) to start a trade. Therefore, a £1,000 deal on the GBP/USD currency pair will only open £500,000. The trader has a risk worth £ 1,000 but that trade (the risk of total investment loss is minimal, but that’s the value of the position) – so the warning attached to the CFD trade may Exceed the initial deposit . . Profit is also known as “leverage”. In this case, leverage is usually expressed in multiples, so 200: 1 represents 200 times the leverage in the deposit. Amplitude the equivalent is 0.5%. Therefore, when comparing brokers, low profit margins require less deposits. This is very important for some traders but less important for others.
Trading floor
Trading platforms may be almost identical. If a trader finds it difficult to use a certain platform, this may be a mistake. Yes, most platforms have similar features but may differ in usability and interface, and some may not be suitable for all traders.
The key is simple and easy-to-use software trading. The trading platform is not suitable for the price for any reason, so the trader may lose the price or make worse mistakes. The trade button may be obvious to some users, but if you are a trader accidentally starting a large trade, you may want to choose a broker based on the clarity of the platform. All demo accounts offer the brands listed here – try before you buy .
Deposit and withdrawal options
This is becoming less important as brokers add more payment methods. However, the list of withdrawal methods is limited, so if you have difficulty making money from payments or brokers, you will know how important these methods are. Please check first.
Features (charts, technical analysis, research)
If you want to investigate transactions through a broker or software, you want to use the best research tools. Chart standards are very different. Some brokers (especially ETX Capital) offer the best charting capabilities with many technical analysis tools that will satisfy even the most enthusiastic technical analyst. However, some brokers argue that traders do not conduct research or conduct elsewhere. Their tools lag behind competitors. Again, check your demo account to make sure your broker offers the required standard.
Other factors
Another factor that allows new traders to compare CFD brokers is the quality and availability of mobile trading applications. For many merchants, mobile transactions will be very important. Others will happily not use the mobile app.
Regulation should be the core criteria for all brokers. This site only includes regulated CFD brokers. This has a comparison factor compared to prerequisites.
Bonuses can sometimes shake up the dealer. Terms and conditions are always important in grant agreements. They can often overwhelm new customers. But if used correctly, rewards can be useful because they mean trading more money or trading without two risks. Short term bonuses will not be used for expensive spreads in the long term.
Our review covers all the elements needed to compare CFD brokers and as mentioned before, every CFD broker listed on the page provides a demo account. This allows traders to take the time to read detailed reviews and test the platform themselves before choosing. After you have all the information, you can decide which CFD broker is best for you.
Find the best CFD brokers
Use these steps to make an informed decision about which broker is best for you and your unique investment style.
- Consider your trading style. For example, what assets do you trade and how often? Size of each transaction, overall transaction goal, etc.
- Choose a CFD Broker that suits your trading style and strategy
- Take advantage of the demo account. Compare each trading platform you listed.
- Make the best choice after using and trading on each platform.
- Deposit and trade real money
Remember: Traders can use multiple broker accounts and use accounts with the best terms for a particular trade or asset. Trade gold with one company, US securities with another. Using accounts offers the best deals for specific deals.